Streetwise Property Alert 2nd July

Welcome to today’s email of overseas news and views…

US – Are You Too Late?

Have you been planning to invest in US property? I think it’s fair to say that, with some markets, Miami for example, the bottom came and went some time ago. There are other markets that are, arguably, now at the bottom and you may wish to look at them soon if you are keen to avoid missing out on the keener deals. The National Association of Realtors (NAR) offers a good overview.

‘The recovery is strengthening and we expect limited housing supplies for the rest of the year in much of the country. The housing numbers are overwhelmingly positive. However, the number of available homes is unlikely to grow, despite a nice gain in May, unless new home construction ramps up quickly by an additional 50 per cent. The home price growth is too fast, and only additional supply from new home building can moderate future price growth.’

‘Market conditions today are vastly different than during the housing boom. The boom period was marked by easy credit and overbuilding, but today we have tight mortgage credit and widespread shortages of homes for sale. The issue now is pent-up demand and strong growth in the number of households, with buyer traffic 29 per cent above a year ago, coinciding with several years of inadequate housing construction. These conditions are contributing to sustainable price growth.’ If there is sufficient demand from, say, 12 to 20 want-to-invest-this-year members, we will run a small seminar in London on a Saturday in mid-July. A show of hands please?

What If?

We always stress the importance of – as part of your pre-investing due diligence – thinking about worst case scenarios and how (if!) you could live with them. Examples? What if the size of the development doubled? What if you could not let the property? What if it is not even built? What if flights to that airport cease? What if the government…and so on.

OPP Connect makes an interesting point on this matter with, in essence, the far from uncommon scenario of what if the currency exchange rate changes. They quote Marc Morley Freer, Head of Private Client Business at Smart Currency Exchange, who comments on what might happen as Mark Carney takes over from Mervyn King. ‘It is fairly widespread comment that Carney is likely to take the stance of sterling devaluation and join the many other countries in trying to reduce the strength of their currencies. Effectively this ‘currency war’ has trundling along now for many months.’

‘If Carney goes the full course, rather than reducing his plans at the first signs of financial improvement, we could see sterling reduce by up to 15 per cent giving USD/GBP rates of 0.755. This would generally be good news for overseas buyers as the UK becomes more affordable. Given that this calendar year sterling has already devalued by 4 per cent it is making the UK housing market look like a cheap asset purchase for foreign investors.’

‘Any overseas property buyer making a purchase in the near term should seriously consider their options when securing their foreign currency and ensure that they keep to budget. With the expected currency movements it could be all too easy for a buyer to face an additional cost of 10 per cent or more unless they take steps to avoid this. It is therefore important for UK property investors to think about fixing the exchange rate for future transactions.’ A good heads-up.

Prime London News

According to the latest Savills quarterly prime London index, prices are still rising strongly. Prime property prices increased by 2.5 per cent between April and June. As ever, look behind the averages. There are significant differences in performance between locations and price bands.

‘Fulham is classic example of an area which has undergone ultra-gentrification, attracting international and domestic buyers who, despite significant wealth, have been priced out of the central London market. Such migration of wealth is being seen from Chelsea to Fulham, Kensington to Battersea and Wandsworth and from Notting Hill to Chiswick. At the same time, domestic wealth has resisted a move out of the capital in this recovery cycle, resulting in a concentration of demand in prime southwest London and similar markets such as Islington.’

‘Other central London markets have remained more reliant on world money and price growth has become more subdued. Locations such as Kensington, Holland Park, Notting Hill and St John’s Wood have been more sensitive to the effect of stamp duty changes for properties over £2 million than the core central locations. This has focused buyers’ minds on whether certain segments of the market are fully valued for now with the result that these areas barely registered any price growth in the quarter.’ More to come.


Property Alert

US Price Rises

New figures from the US National Association of Realtors (NAR), suggests prices are up by an average of 11 per cent over the year to the end of April 2013. Volumes are up as well but are limited by a lack of supply and a lack of finance.

Lawrence Yun, NAR’s Chief Economist, summarises, ‘The robust housing market recovery is occurring in spite of tight access to credit and limited inventory.  Without these frictions, existing-home sales easily would be well above the five-million unit pace.’

‘Buyer traffic is 31 per cent stronger than a year ago but sales are running only about 10 per cent higher. It’s become quite clear that the only way to tame price growth to a manageable, healthy pace is higher levels of new home construction.’ More to come.  

Look At Italy?

Property EU’s recent briefing on the Italian property market in London was interesting; asked how they would each spend a theoretical €500 million in the Italian real estate market, experts came up with various suggestions.

Gabriele Pompei at K2Real said, ‘Southern Italy is not just good for shopping centres but for resorts too. Here, returns on investments can be quite high. This would not necessarily be luxury accommodation. Instead, I see potential for student accommodation or care homes with good standards and good facilities.’

Francesco Sanna at K&L Gates’ Milan office said, ‘I would invest in luxury resorts and the public asset development sector. You need to find a very good operator but these sectors are on the rise.’ More on Italy soon.

Portugal – No, Not Yet!

The latest RICS/Ci Portuguese Housing Market Survey (PHMS) is being spun, ever so gently, into a sales pitch in some quarters. I’ve seen one headline that reads, ‘Sales expectations and new instructions both turned positive for the first time since autumn 2010.’

Dig a little deeper and we see that, of those interviewed, 45 per cent more respondents experienced price falls than rises and 39 per cent more respondents believe prices will fall further than rise soon.

RICS’ Josh Miller calls it well, ‘The April survey results point to further early signs of stabilisation in the sales market. However, at this stage we would caution against concluding the market has definitely turned a corner; prices are still falling and the broader economic backdrop remains very weak, with unemployment at 17.5 per cent. Meanwhile, activity in the lettings market appears to have run out of momentum.’