Now is not a good time to have loads of cash. Soaring inflation in most places, volatile exchange rates and atrocious interest rates are causing cash to devalue at a rate not seen in my lifetime. So it is hardly surprising that the worlds wealthy are seeking to put as much of their net wealth into safer assets as quickly as their pretty-little Parker pen's can sign.
This is what triggered the gold rush, which is still going on now even as the price of gold threatens to hit the $2000 dollar mark. But most analysts have been steering away from gold since prices rocketed in 2010, and prime property in locations that have come to be known as safe havens have become the order of the day to protect the wealth.
Safe havens are markets where property has proven capable of holding its value during financial shocks. They are also locations which are currently seeing property values rise, whereas prices are stagnating or falling in most places at the moment. However, when you look at most of the safe havens you usually find out that they have long been outperforming during both up-cycles and down-cycles. This is because they are locations where property is more expensive, so the owners tend to be better off, which means when things turn ugly they aren't immediately put under pressure to offload their assets or downsize etc.
1: **Star Safe Haven** London
This has to be the ultimate of all the safe-havens. London is one of the financial capitals of the world, prime property in the city is some of the most sought after in the world, it holds its value well and outperforms in down cycles and up cycles. What's more it is outside the Eurozone and its sovereign debt crisis, as outside it as anywhere can be anyway.
Since 2002 the average value of homes in Greater London has increased by 56% from £232,890 in August 2002 to £364,059 in August this year according to Land Registry data. This is compared to Birmingham for example, where the average value of homes has grown just 36.2% from £83,233 in August 2002 to £113,400 in August this year.
More importantly the peak to trough fall in Birmingham was from £136,244 in January 2008 to £110,691 in June 2009; a fall of 18% in 18 months. This is compared to a fall of 16% in 17 months in Greater London -- so a smaller decrease and a shorter crash. More importantly, since bottoming in May 2009 the average value of homes in Greater London has grown consistently, with values growing from £294,398 to £364,059 (as of August), a growth of 23.6% since the bottom, and leaving prices 0.04% higher than they were before the crash. In Birmingham prices grew only until March 2010 and have been stagnating and falling ever since, as of August the average value of homes in Birmingham was just 0.02% higher than at the bottom, and still down 16% compared to pre-crash levels.
That is only in Greater London, in the likes of Kensington and Chelsea the market has performed even better, not least because of the effects of the wealthy paying a premium for prime property in the London safe-haven.
The reason why these markets have performed better than others is because they are more expensive, so the owners tend to be better off, which means when things turn ugly they aren't immediately put under pressure to offload their assets or downsize and such like.
2: Switzerland, Geneva, Zurich
Switzerland has long been an economic haven, but since the Eurozone crisis blew up the strength of the Swiss Franc has ballooned due to its safe-haven status. Property investors have so flocked to buy into safe-haven Swiss property that they have driven the average price of property across the country to levels last seen in California before the US bust at $850,000, and in Zurich and Geneva the average price is even higher at $2.1 million and $2.55 million respectively. They say you need a mortgage to buy a cup of coffee in these cities.
Of course, Switzerland doesn't want to be a safe-haven, because such growth literally screams bubble. In order to fight off the flow of money the government has just imposed a sub-zero key interest rate. However, if this is as effective as its efforts to combat the rising strength of the Swiss franc we shouldn't hold our breath.
3: Germany: Hamburg, Munich, Frankfurt and Dusseldorf
In terms of European sovereign debt Germany is already arguably the ultimate safe-haven, but with investors currently (and for the last few months) having to pay for the privilege of lending money to Germany in German Bunds, real estate is becoming the next safe-haven in Germany.
"'Safe haven' is on everyone's lips. And if investors ask themselves in which regions and with which investment vehicles it is still possible to invest, they will not be able to avoid property," Dr.Frank Pörschke, CEO of real estate services group Jones Lang LaSalle Germany said in the group's latest German property market report.
In a way Germany should be the number one safe haven, because while property is holding its value, it is not seeing the same bubble-scary growth as other markets. In deed, growth is inline with economic growth at around 2-3% per cent per year for the last few years. What's more the growth follows a prolonged period of stagnation in the market, which has left plenty of room for growth.
"Despite the deep global recession in 2008/9, Germany has experienced average annual real economic growth of 2 percent since 2005 compared to less than 1 percent between 2000 and 2005. The economy and residential property prices developed quite similarly," Deutsche Bank said in a recent report. "The recent increase in residential prices went hand in hand with a rise in disposable income, so the price-to-income ratio remained flat."
The bank believes the flight to safe havens is likely to continue to support German house prices in the near future with prices are likely to rise fastest in cities with more than 500,000 inhabitants.
- Monday 08 October 2012