Overseas residential property marketing and public relations

Previous property market reports

ANALYSIS OF THE UK MARKET FOR OVERSEAS PROPERTY (SUMMER 2010)

 

Since the election and creation of the Conservative and Liberal coalition government in May, there has been greater confidence in the UK tackling its budget deficit. This combined with concerns over the stability of the euro, which has been undermined by the massive debts of Portugal, Spain and Greece, has resulted in the pound reaching a value of €1.21.  Since January last year, when sterling was at its lowest against the euro, it has increased in value by 20 per cent. Undoubtedly, this will be good news for UK buyers who are considering buying property in the euro zone.

 

The relatively cheap prices, compared to the peak, are beginning to stimulate interest with UK buyers. The number of Brits searching online for overseas property doubled in March 2010 compared to the previous year, according to portal Primelocation International.

 

UK property prices continue to rise. Prices increased by 0.5 a per cent in May, taking the average price of a UK home up to £169,162 which was £15,000 more than a year ago, according to the Nationwide, one of the UK’s largest mortgage lenders. Year-on-year prices rose by 9.8 per cent. However, transaction volumes remained low.

 

But against this positive housing market news, the future outlook is uncertain with a number of dark clouds on the horizon. The government is in the process of making drastic cuts to public spending, which may depress the market again.
Capital gains tax will be increased to 28 per cent for higher earners in April next year, which may deter UK property investors and second home buyers but increase their interest in the purchase of overseas property.

 

About 430,000 foreign holiday homes are owned by Britons, according to a joint Savills and HomeAway.co.uk survey published earlier this year. Of these properties, around half are near the coast, a third are rural and only seven per cent are in inland urban locations. About 80 per cent are within 60 miles of an airport, 85 per cent of which were serviced by low-cost airlines. British buyers look for a three or four bedroom property in quiet coastal locations. Lifestyle rather than investment are the main reason for owning an overseas home. UK purchasers have also turned away from the exotic and have focused their attention on more traditional destinations such as Spain, Italy, France, Portugal and the US. The historically low prices during 2009 in these areas tempted mainly discretionary cash purchasers to buy.

 

More lifestyle purchasers are likely to join them, particularly within the euro zone. This is because of a stronger pound and bargain property prices in popular holiday destinations, such as Spain and Portugal, which are likely to see further price falls, as governments impose tough austerity measures to bring down massive budget deficits.

 

Relatively low-prices in other close by destinations in emerging markets, such as Romania, Morocco and Montenegro, may also begin to attract buyers for quality property. Florida, with historically low prices, may also begin to attract buyers, but Gulf of Mexico facing properties may suffer a slight drop off in interest due to concerns about the possible effects of the Deep Water Horizon oil spill.

 

References: Sterling prices, Savills and HomeAway.co.uk report Daily Telegraph article, Global residential review 2010, Savills, and Nationwide May property prices report.

 

 

ANALYSIS OF THE UK MARKET FOR OVERSEAS PROPERTY (MARCH 2010)

The main story of the UK economy in early 2010 is tentative signs of recovery.

 

The economy returned to growth of 0.3 per cent in the last quarter of 2009. However, concerns over the UK’s budget deficit and consequent tax hikes and government spending cuts have at the beginning of the year battered confidence in the economy and sterling. Uncertainties over the outcome of the general election and whether there will be a hung parliament, where there is no party with a majority, is expected to add further pressure on sterling.

 

Predicted growth

The economy is forecasted by the government to grow by 1.25 per cent over 2010 and 3.5 per cent for 2011. But the Confederation of British Industry (CBI) is more pessimistic, and has predicted growth of 1 per cent this year and 2.5 per cent in 2011. Recent good news is that unemployment continued to drop, with total unemployment down 33,000 over three months ending in January 2010. The UK’s public sector for the financial year ending in March 2010 is also set to borrow less than expected, although it will still leave the deficit at record levels.

 

How the UK residential property market performs will influence some buyers of overseas property, particularly if they are raising equity against existing property. Stable or rising prices will boost the confidence of purchasers.

 

Residential market

The market for residential property had a jittery start to the year, with both the Halifax and Nationwide, two of the UK’s major mortgage lenders, reporting a dip in prices in February of 1.5 per cent and 1.0 per cent respectively. This compared to growth of around 5 per cent over 2009, according to both lenders. However, many commentators, including the Royal Institution of Chartered Surveyors (RICS), attributed the drop in prices to two exceptional factors coming into play at the beginning of the year. First the exceptionally cold weather deterred buyers, and the withdrawal of a stamp duty holiday on January 1st pushed forward sales that would have taken place in the first couple of months of this year. RICS considered the drop as a blip, and predicted prices to edge upwards over the coming months.

 

Prices rose by 0.3 per cent over February, according to Hometrack, a property market intelligence organisation. But Hometrack cautioned that the price rises were due to a supply shortage rather than increasing demand, and warned that the supply was likely to loosen in coming months.

 

The government’s March budget has given the property market a boost by withdrawing stamp duty on properties less than £250,000 for first time buyers.

 

Over this year as a whole the Halifax has predicted zero growth in prices, while Ernst and Young ITEM Club has forecast a drop of 1.4 per cent during 2010 and a slow recovery in 2011. The National Institute for Economic and Social Research has predicted a fall of 1 per cent this year and 3.5 per cent in 2011. But there will be considerable regional variance.
Although the UK’s economic progress has been slow, star performers in the financial services sector seem to be returning back to the heady pre-crash days. In the early part of this year the international banking sector as a whole was estimated to pay out in bonuses around $65 billion (£40 billion), according to The Guardian. London’s finance workers will take a substantial proportion of this bonus.

 

References: Economy: BBC Business, Sterling: Currencies.co.uk and BBC website, UK employment: BBC News, UK property market: BBC News, Propertywire and Hometrack,and Bonuses: The Guardian.

 

Further information about Chelgate's consumer property capabilities can be viewed here, and a selection of media coverage achieved for clients can be viewed here.

 

Mixed economic signals but growth to return and strengthen next year (November 2009)

Signals about the health of the UK’s economy and the wealth of its property owners are somewhat mixed. All the recent main house price indicators show an increase with the trough in the market having occurred at the beginning of this year. But, this news has been tempered with unexpected negative GDP figures for the third quarter showing the UK is still in recession. Understandably, this economic uncertainty will impact on the market for overseas homes.

Although the third quarter economic figures are a setback, the Bank of England in its latest inflation report predicts, based on positive underlying statistics, a return to growth by the beginning of next year expanding to 3.75 per cent by the end of 2011. This recovery is considerably faster than forecast recently.

However, although the general economy is in recession, the bonus culture has returned which will enable those benefiting to fund discretionary purchases, such as properties abroad. The downturn as a whole seems to have had little effect on the overseas property purchase and emigration plans of wealthy individuals, according to the UK’s premier removals company, Abels Moving Services, by appointment to HM the Queen. Although the firm has seen a significant drop in UK sales in the last 12 months, it reports no change in overseas moves for the same period.

The UK's economy shrank by 0.4 per cent in the third quarter of this year. This has been attributed to poorer than expected performance of the service sector. In contrast, house prices rose by 2 per cent in October 2009 year-on-year with monthly increases of 0.4 per cent, according to the Nationwide, a leading mortgage provider. Another leading lender, Halifax, reported for October 2009 that house prices had increased by 2.9 per cent since the end of 2008, with the year-on-year price drop slowing to - 4.7 per cent. A positive September monthly growth of 0.9 per cent, the fifth month in a row, was revealed for the third quarter by the Land Registry with London and the South East leading the price increases.  Mortgage approvals in September rose to the highest level since March 2008, according to the Bank of England.

Some analysts are expecting the market to slow as gaining unemployment, tax rises and interest rate increases impact on demand. Estate agent, Knight Frank, forecasts prices to fall in 2010 with a concerted recovery not starting until 2012.  But London and southern England, particularly at the top end of the market, are expected to perform more strongly and recover earlier.

However, UK investors are gradually returning to international property, attracted by low prices combined with the perception that the bottom of the market has been reached in many areas in the world, according to some agents.

There has been particular interest in Self Invested Personal Pension (SIPP) funded purchases of apart-hotels, which as they are classified as commercial property are allowed under government regulations. Stock market uncertainty and low interest rates have also driven interest in property as an investment, but buyers are insisting on value in markets that are perceived to have bottomed out.

Although the general economy has been weak, sections of the UK’s global finance business are reporting profits with a return to bonus payments, for example investment bank Goldman Sachs has recently announced bonuses for staff. The figures indicate that salary and bonuses for its London employees will average £350,000 this year. Recipients of these bonuses, high net worth individuals, who are mainly based in London and the South East, will be interested in high-quality property overseas, particularly in the more stable markets.

Sources: www.news.bbc.co.uk  www.propertywire.com

UK property market report (July 2009)

Market commentary

Although the UK market for overseas homes dropped sharply towards the end of 2008 and during the first half of this year, there have been a number of signs that the worst is over.

Britons spent about £24bn on overseas property in 2007, which declined by between 35 to 40 per cent year on year by October 2008, according to the national daily newspaper, The Independent. While hard figures are difficult to find, reports in early 2009 indicate that the market shrank further. There have been two major factors driving this: a weakened pound and difficulties in raising finance, either through equity release from UK properties or by obtaining mortgages. However, in the past couple of months there have been noticeable improvements in sterling’s strength and in the availability of mortgage financing.

The decline of the pound has had a particularly noticeable effect in eurozone purchases by British buyers. But the combined news of weakening European economies and improvements in the UK’s economy has recently boosted sterling, which reached a high of €1.18. This contrasts with December when sterling was close to parity with the euro. Many currency analysts are expecting the pound to further strengthen as the poor position of many of Europe’s financial institutions becomes more apparent. The leading credit rating agent, Standard and Poor, has given negative assessments for more than half of the eurozone banks. Many currency traders are suggesting that a rate of €1.20 will be the tipping point when many UK property investors pile back into the continental market(1).

A number of City analysts and economic experts have made positive revisions to their UK housing market predictions, saying that the decline will be less severe than originally forecast.

A poll of City economists by Reuters revealed that a majority thought house prices would drop by eight per cent this year, remain flat next year and start rising again by two per cent during 2011. From the peak of the market reached in the autumn 2007, their predictions indicate a peak to trough decline in property prices of around a quarter. This is far less severe than first forecast (The Times, June 26).

In early June, Capital Economics, a leading economic forecasting consultancy, predicted the UK housing market will decline by 10 per cent this year, compared to its previous forecast of 20 per cent. It also adjusted its forecast of 10 per cent decline in 2010 to between five and seven per cent.  Rival city consultancy, IHS Global Insight, has said that its 10 per cent decline forecast was too pessimistic.

The UK’s biggest mortgage lender, Lloyds Banking Group, has recently changed its prediction for this year from a decline of 15 per cent down to 10 to 12 per cent.

Various derivative traders are now predicting a peak to trough fall in property values of 30 per cent, compared to 44 per cent given in February this year. The trough is expected to be reached in December 2010 (The Sunday Times, June 14).

Some of these forecasts have incorporated a plethora of upbeat statistics, which show property price increases or a slowdown in the rate of decline, indicating that the overall drop in prices will be less severe than first thought.

Halifax, one of the UK’s major banks, reported a 2.6 per cent property price rise in May, the biggest monthly rise for seven years. Nationwide, another important lender, reported a rise in the same month of 1.2 per cent, the third consecutive month it had reported price increases. One of the leading property market intelligence firms, Hometrack, has said that prices steadied in May after 20 months of falls.

Meanwhile the Land Registry, the government agency which handles property transfers, reported a decline of only 0.3 per cent in April, with six out of 10 UK regions reporting increases.

On the financing side, mortgage approvals rose 16 per cent in May to 31,162 loans, the highest level for 13 months, according to the British Bankers’ Association (reported in The Independent, June 24). However, gross mortgage lending was at a level last seen in February 2001. The government though its ‘quantitative easing’ programme has pumped £125 billion into the financial system, which is beginning to help improve the volume of mortgage lending(2).

Market potential

There are concerns whether the pickup in the market can be sustained. Unemployment has been rising, which will affect future property demand. Another worry is that a smaller proportion of the £125 billion will get to property purchasers than expected. This is because the banks are using the funding to bolster their balance sheets in their bid to return to profitability. An example of this is that banks are insisting on deposits of 25 per cent of the purchase price, making purchases difficult for first time buyers.

But this is of less significance to the overseas property market as purchasers are mature with considerable assets, and lending to such individuals has improved.

Overseas buyers

The UK has a high level of owners of overseas properties, and this is unlikely to change. British and Irish citizens now own up to 3.81 million homes in foreign countries(3). In fact, as this excludes time share and fractional ownership, the actual total is even higher.

Those who invest or move abroad will have been affected by the recession just like everyone else, but their plans are more likely to have been postponed rather than cancelled. People will still be contemplating retirement or emigration, and they will still have their assets or pensions, although many will wait until confidence has returned to the market before realising their dreams.

(1) Overseas Property Professional
(2) This Is Money
(3) Business intelligence organisation Datamonitor