real estate

Reading Between The Lines: Why Eurozone Improvement is Being Ignored

Published on the Front Page of Huffington Post Business

Markets have shrugged off improvement in the Eurozone because more is needed for stability. Rising demand for German goods, an improving business climate and stability in Spanish housing should have given markets cause for celebration. However, after the substantial rally we’ve seen, and the headwinds yet to be tackled within the region, caution has crept back into markets.

Absence of Growth and Currency Risk

There is deep concern over Europe’s ability to kickstart growth, as austerity measures dampen economic expansion and a strong euro stifles exports. The increase in demand for German factory goods interestingly was driven by demand within the euro area. Domestic demand was weak and the currency still source of concern abroad. Furthermore, despite an overall improving business climate, uncertainty in the political and economic landscape going forward is causing delay in hiring and investment.

Spain Precarious and Firepower Lacking

Once again hitting the headlines, Spain could derail European stability, as corruption charges are directed at the government while they continue to grapple with a large budget deficit. The latest data points to a possible floor in Spanish housing prices but defaults on bank loans due to the real estate bubble remains elevated and there is only limited further financial aid available directly from the rescue fund. In order to meet its main obligation of lending to struggling countries, additional direct bank aid has been rumoured to amount to less than €100bn, nowhere near enough to contain future turmoil!

Reform and Unity Needed

With France expected to have slipped back into recession, Draghi, the European Central Bank President, is right to warn that the region is not in the clear yet. What’s needed now are structural reform and closer fiscal and political unity. Only with a return of confidence, based on improving fundamentals, can stability return.

rafa-sanudo-euro-crisisstock market

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Further Disappointment For The UK As ‘Triple Dip’ Threat Gains Momentum

After disappointing economic growth within the UK fed fears of a ‘triple-dip’ recession, housing market data has added fuel to the fire. Stability is needed for consumers to feel more confident and comfortable spending but instead contraction continues. Outside of London and within the prime real estate market, demand has been driven by a low level of supply and foreign investment. However, outside of this insulated area, property is struggling and banks still have assets to offload which could further maintain downward pressure on prices.

Opportunities for Careful Investors

THE current financial climate is making it harder to decipher where investors are going to find returns. The rates on holding cash are low, bond yields in general have narrowed substantially and there is much uncertainty on the outlook for the stock market. In addition, with macro risks on our minds and the sovereign debt crisis raising concerns, risk aversion is on the rise. In this environment, investing in something tangible that could provide a potentially uncorrelated return is attractive. Nevertheless, there has been a vast difference in returns from various investments in this market. Therefore, it will pay to be particular.

There has been a stark divergence of fortunes between property prices inside and outside of London. Location within or access to the city is a price-setter. Fundamentally, prime assets in attractive sectors should see a level of demand providing a floor on prices. Foreign investors have been quoted as spending £3.7bn per annum for London residences, due to the inviting exchange rate, national ties, as well as in some case the greater political stability that our city can offer. The emergence of an appetite for second homes has created demand in another segment of property investing, where the right location will again be crucial.

Students are another opportunity. Regional student housing is the UK’s best performing sector with around a 15 per cent ROI last year thanks to a shortage of suitable one-bed apartments. Broadly speaking, this is a “buy-to-let” approach. Rental rates are at all-time highs and the short-let market is booming. It is predicted that for the Olympics, rates will increase six-fold.

Therefore, depending on your strategy, timing may also be crucial. To play the school or student market, the run up to September is a key window of opportunity. The challenge is in finding the investments that fit your aspirations, and putting your plan into action at the right time. In a desired area, properties can attract multiple buyers, making this task tougher.

Nevertheless, with inflation one of the biggest threats to the market currently, implementing the right strategy and picking the right property will help provide some protection.

This article was featured in CityAM.