This evening Greece is on the verge of collapse with talks over a final bailout extension with European partners having collapsed over the weekend. Indeed we now hear that the ECB has withdrawn all emergency liquidity for Greek banks amid concerns that capital controls could reduce the maximum withdrawals per person to just €60 a day. There is talk of a significant fall in stock markets around the world when they reopen tomorrow morning but could the Greek problem benefit the London real estate market?
Will money flow out of the Eurozone?
It seems almost inevitable that the dreaded contagion could sweep through Europe’s weaker economies if indeed Greece defaults on its IMF liabilities at midnight on Tuesday. This is the worst case scenario for Eurozone leaders amid concerns that investors will then pick off weaker members of the European Union one by one. This is something we have seen in years gone by, when the Irish, Portuguese and Spanish economies collapsed. So, how could this benefit the UK?
Safe haven status
The UK real estate market, and in particular London, has been something of a safe haven for many investors during these troubled economic times. In light of the 2008 worldwide economic collapse the London market bounced back relatively quickly with significant capital investment by overseas investors. Indeed, the fact that the UK government of years gone by refused to take on board the Euro is now paying significant dividends and fully justifies the tough stance.
We can only estimate how any safe haven investment switch towards London real estate, and the rest of the UK, would impact the current perceived “overvaluation”. While there is no doubt that the UK is benefiting from weakness amongst its European partners it is worth remembering that the UK economy is currently one of the strongest in the developed world.
Is there value in Greek real estate?
They say it is darkest just before the dawn and this reality is this evening hitting the Greek population, government and investors. Amid signs that some of the more adventurous real estate investors are looking towards Greek property in the short to medium term, it begs the question, is there real value in the Greek real estate market?
The reality is that at this moment in time, with so much uncertainty, it would take a brave person to invest in the Greek property market. There have been rumours that the Russian authorities are willing to lend money to prop up an ailing Greek government but this seems highly unlikely. At this moment in time only European partners and the IMF are willing to lend to the Greek government. There may be value in the Greek property market, we may look back in years to come and wonder why we did nothing but at this moment in time the uncertainty and confusion about a possible Eurozone exit makes it difficult to see any value in the short term.
It does look as though the London real estate market will benefit to a certain extent from safe haven status and the ongoing problems in Greece. Whether this will stretch what many perceive to be already overvalued UK property assets remains to be seen but there is no doubt that the decision of previous UK governments not to adopt the Euro is certainly starting to pay great dividends for the country.