UK property market report (Winter 2010)
UK PROPERTY MARKET REVIEW (WINTER 2010)
UK market for overseas property
Lifestyle purchases of desirable properties in prime destinations, such as the French Riviera and the Italian lakes, continue to be made by affluent individuals, particularly those who are benefitting from bonuses generated by the UK’s resurgent banking sector. It is forecast that City workers this year will take home £3.8 billion in bonuses after tax, according to the Centre for Economic Business Research.
The IMF predicts that economic growth for the UK in 2011 will be two per cent, despite a weak property market and the current round of massive public spending cuts.
UK house prices rose 1.8 per cent in October, following a dramatic drop of 3.6 per cent in September, according to the Halifax, one of the UK’s largest mortgage lenders. But many analysts are expecting a decrease in house prices next year as the government’s cuts begin to bite. For example IHS Global Insight predicts a fall of 10 per cent during 2011.
However, there will be considerable regional differences with northern England expected to feel the brunt of the cuts, and property prices there, likely to decrease the most. In contrast, with the UK’s London-based international finance sector recovering strongly, the market for prime central London properties will be more resilient. London prime property is also in demand from foreign buyers, which has buoyed up the market. In the 12 months to June this year half of all new build apartments in the capital were bought by foreign nationals, according to Knight Frank’s report Global Residential Market Forecast 2011.
Investment market
With a weakening domestic property market many UK investors will be examining opportunities presented by overseas property. Many nations’ property markets have begun to recover, with 61 per cent of the world’s countries of interest to investors posting positive growth during the year ending in the second quarter of 2010, according to Knight Frank. The agent forecasts that global price growth will slow in 2011. But underlying this, the market should improve in Europe while Asia should see growth at a more sustainable level reducing the risk of a property price bubble.
Asia Pacific locations have been the top capital growth performers, with some countries failing to register a drop in prices since the onset of the credit crunch. Knight Frank predicts that growth is expected to continue, albeit at a lower rate over 2011, in Hong Kong, Singapore, Australia and China. Some of the countries that have suffered the worst from the market downturn in Europe, for example Spain, Ireland and various Eastern European destinations are expected to see events improve. Ireland and Spain are predicted to have a slowdown in the rate of decrease of prices while some Eastern European countries may show a slight increase.
Exchange rates
The pound has recently risen to 1.18 against the euro, but has some way to go to its June peak against the euro of 1.24 euro to the pound. This rise follows growing concern about the stability of the euro after the bail-out of the Irish economy by the IMF and EU. The highly indebted countries of Portugal and Spain, which is a considerably larger economy than Ireland or Portugal, could undermine the euro further, and these fears will be reflected in the value of the currency over the coming months. Against the US dollar, the pound since its low point of 1.42 dollars to the pound in May this year has risen 14 per cent to 1.62 peak in early November, and has now dropped down to a still respectable 1.59. This dollar weakening follows news of a slowing US economy and speculation the Federal Reserve will continue its quantitative easing programme, which means low interest rates and a weaker dollar.
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