The performance of the worldwide real estate market has on the whole been better-than-expected over the last few years, bearing in mind the economic situation, but property experts are divided on the prospects for 2015. If you look at countries such as the UK, Australia and the US, to name but a few, you can find experts predicting a significant fall in property prices and others expecting an increase. So, what factors are impacting the advice and opinions of property experts in 2015?
While some property markets, for example the London property market, seem to go against the general trend of the worldwide economy on numerous occasions, this cannot happen indefinitely. The fact remains that issues across the world do impact a whole array of areas overlapping the real estate industry such as affordability issues, bank lending and the political arena.
One potential fly in the ointment is the European Union were problems in Greece could have a knock-on effect, impact the currency and see a reduction in EU membership for the first time in history. Indeed we also have the UK government threatening to hold an in-out referendum on the European Union although experts believe this is highly unlikely with the issue perhaps been used as a poker chip. Nonetheless all of the confusion and uncertainty in the short term will not assist what is already a fragile worldwide economy.
Quote from PropertyForum.com: “Is it time to take a contrarian approach to real estate investment?”
Cost of finance
When you look at UK interest rates for example, currently at 0.5%, many people are using this current low-cost finance environment to enter the real estate market. However, there are a number of issues which could impact liquidity in the money markets such as growing problems in China, currency issues across the world and concerns that deflation could rear its ugly head. We also have problems with the oil industry where the price of oil has halved over the last six months which will have a positive impact upon consumer spending in the short term but could significantly impact government tax income.
As a consequence, there may be further pressure on mortgage rates on the upside as a means of curbing “overexuberance” and “reckless” investment. Indeed governments around the world also have an obligation to ensure that when the turn in the interest rate cycle does occur, as few people as possible will see their finances decimated. This could well be a tricky situation for the authorities because many investors will certainly feel the pinch as and when interest rates do eventually turn.
Demand for property
Even the London property market has seen a reduction in demand in the short term and indeed an increase in stamp duty is yet to really impact investors. At this moment in time it does seem as though governments around the world are using the fact that property prices have risen in many areas as a means of raising further tax under the banner of “social justice”. If the UK government can even consider the implementation of a mansion tax then what can we expect from some of the more radical governments around the world?
In simple terms, confusion over potential changes in the structure of real estate markets around the world will spook many investors. They could move onto the sidelines in the short to medium term to see any impact of proposed changes and this could see property prices drifting. Let’s not forget that many investors are sitting on healthy profits from their property assets and if the upward potential is limited in the short term, would you blame them for taking a profit?
You will see as many property experts positive and negative about the prospects for the worldwide real estate market in 2015. The fact remains that property prices have risen significantly over the last few years, indeed this caught out many property experts, and there will at some point be a natural period of profit-taking. We also have a variety of issues with the worldwide economy, the cost of finance, demand and political interference to take into account, all of which lead to uncertain times in the short to medium term.
Do you think we will be sitting here in a year discussing a rise in the worldwide real estate market?