Breakdown of the Global Real Estate Market

It might have been almost 5 years since the world fell into a state of economic inebriation but it is still like a drunken sailor taking two steps backward for every one forward...

It might have been almost 5 years since the world fell into a state of economic inebriation but it is still like a drunken sailor taking two steps backward for every one forward.

When Asia fell, China stayed strong while Thailand suffered, now China is forcibly squashing what it believed was a bubble, while Thailand is either inflating a bubble of its own or doing very nicely indeed thank you very much.

Throughout the American crash Canada was one of the hottest property markets in the world, now when the American market looks like recovering it is starting to look like the pundits shouting Canada is bubbling may have been right as that market cools. This will shock few rational people as Canadian property was rated overvalued by the UN before the crash and with property prices growing at an exceptional rate since then, the problem has got worse instead of better.

In the grand scheme of things, the latter is not so bad because while the American economy is a support wall when it comes to the global economy, Canada is one of the exterior ones. Unlike the case in Asia, which is the opposite; China is much more important to the global economy than Thailand. Of course, as yet the Chinese economy has yet to see severe detriment because of its cooling property market, so we breathe on, but you can see the pattern here.

Here are some other examples of the patchwork global real estate recovery.

Central and Eastern Europe

This is another region that performed incredibly well throughout most of the crash and even during the European debt crisis, but cracks are now starting to appear.

You have the likes of Slovakia, which after a brief economic slowdown in 2009 recovered quickly to become the fastest growing economy in the EU. While its residential property market never really set pulses racing its commercial property market became very popular indeed. A similar story for Poland, the Czech Republic, Slovakia, Hungary and Romania, Latvia also did well but it enjoyed an exceptional recovery in its residential sector – more on that later.

Poland was the biggest hit with investors, with 2.58 billion euros worth of property investment in 2011. However, while Slovakia is the littlest in terms of overall volume it was the fastest growing with 263 million euros invested in 2011 almost 4 times the 53 million invested in 2010. Czech Republic saw the second biggest growth, with 2.2 billion invested in 2011, compared to 479 million euros in 2010. Hungary was the next hottest climber with 728 million euros invested last year, up from 240 million in 2010. Romania saw investment volumes grow to 320 million euros from 2010's 241 million.

But now into 2012 and the tables are being turned on even these dynamite markets. According to real estate company DTZ, just €327m was invested in property in the region in the second quarter, down from €834m in the first quarter. Overall, activity for the first half of the year was down 47 per cent over the same period in 2011 according to the firm. The report said:

"Poland, which usually dominates CEE market activity, has registered a strong decline from €717m invested in Q1 to only €122m in Q2. By contrast, the Czech Republic recorded an increase in investment volume with €159m in Q2 following a muted Q1. Together, these 2 countries accounted for 90% of market share in H1 2012."

According to Cushman and Wakefield the Czech Republic's resilience will be short-lived. The firm is predicting a 50% drop in investment volumes in the Czech Republic for this year to just over EUR 1 bn from EUR 2.1 bn in 2011.

In the ultimate CEE emerging market of Russia, transaction volumes fell 44% to EUR 1.2 bn in the first half of 2012 compared to the same period the year before, according to property adviser CBRE.

On the wider economic front the Czech Republic economy is contracting, down 0.7% and 1.2% year on year respectively in the first 2 quarters according to Eurostat. Likewise Hungary with -1.2% and -1.0% year on year in Q1 and Q2.

The UK

This is the ultimate patchwork blanket of ups, downs and swings. You have the residential housing market, which went down in 2008, then back up a bit in 2009 and has stagnated pretty much ever since. That is with the exception of prime central London where prices have continued to grow strongly.

Meanwhile the rental market across the country has spiralled into an unprecedented boom fuelled by excess demand from all the first time buyers unable to get mortgages, and all the repossession victims. Many an accidental landlord has been glad they couldn't sell.

Another bump in the road as recent data indicated that the rental boom may be peetering out. The last few releases of the LSL (owner of Reeds Rains lettings agent network and Your Move) index showed that while rents were growing the growth was slowing. However, rents hit a new record high again in July according to LSL, with 1% growth over June taking the average UK rent to £725 per month – another down and up.

No such luck in the commercial sector, after being one of the most highly sought after markets in Europe in the early days of the crash, investment in UK commercial property is tanking. According to the latest quarterly index by IPD, net investment in property outside of London (including investment, sales, development and refurbishment) in the second quarter fell £161 million compared to Q1, the first negative result since March 2009 and a worse performance than even Ireland. This shows a massive weakening of confidence in the UK economy.

But the final piece of the puzzle is another massive up. This week CBRE revealed that investment in UK student property doubled in the first six months of this year to £800 million from £375 million in the first half of 2011.


There are many more stories like these the world over. Thankfully, we still have a lot of positives out there, tenacious Turkey continues to perform well, much of Latin America including Brazil is also doing well (although there are reports emerging that Brazil is starting to slow), and overall the tone is that the recovery is slowly but surely strengthening. Let's hope so anyway.

- Tuesday 21 August 2012

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