Amid news that Manhattan property prices continue to defy gravity and the London market remains relatively strong despite constant criticism there is a growing belief that real estate is taking over from gold as the new safe haven. This rise in property prices, usually instigated by buoyant local economies, seems to be a direct contradiction to the state of worldwide stock market.
Earlier this week we saw a massive sell-off in the Chinese stock market and despite repeated attempts by the government to quell selling by major investors, a further sell-off is expected. This has prompted a negative reaction across the US and Europe with all major stock markets starting 2016 under a cloud. So, why do property prices continue to rise while stock markets remain under pressure?
Safe haven status
Historically gold has been the safe haven and go to asset in times of volatility and troubled markets. However, many investors now seem to be looking towards the property market which is fast becoming the new safe haven. When you also consider the number of Chinese investors shifting funds from their homeland to places such as the London and Manhattan property markets, is this not a sign that property is fast becoming THE go to asset?
The simple fact is that as the worldwide population continues to grow, more countries join the economic recovery and a lack of new house builds across the globe impacts supply, demand is pushing prices higher. It seems that each and every major government around the world has promised an increase in new builds but very few have been able to deliver. When you bear in mind the fact that a significant increase in supply would slowdown future property house price growth, would this necessarily be a vote winner?
It is also worth noting that particularly across Europe there are still many banks holding assets which they were forced to reclaim in light of the 2008 economic collapse which saw many of their customers unable to keep up their mortgage payments. What has been significant over the last 12 months is the number of major investment companies picking up these “unwanted assets” at very attractive prices. This in itself has prompted a stabilisation of the European real estate market with some experts predicting an increase in 2016 as the overhang of unwanted property slowly diminishes.
This is of course in direct contrast to the luxury real estate markets of London and Manhattan which have defied gravity for some time now. There was a concern that London property investors were switching their attention to places such as Manhattan, in light of tax changes, but this has not materialised so far.
As the worldwide population continues to grow, property supply continues to lag and demand for real estate increases, investors seem to be turning away from stock markets and gold – is property now THE safe haven asset of the future? Time will tell but there are signs of a significant change in investor attitudes towards property compared to the likes of gold and stock markets. Attractive yields, bank property fire sales and hopes of a general worldwide economic recovery in the medium term seem to be feeding this appetite for real estate. The major concern in the short term is the performance of the Chinese economy and the impact this will have on worldwide economic growth. However, demand for worldwide real estate, especially the luxury markets, is expected to increase yet again during 2016.