It is now going on 7 years since America started to crumble, 6 years since the UK caught the disease, and between that and 5 years since most the rest of the world followed suit, and still we aren't back out the other side in any real way.
Thankfully there is some good news; for a start on the whole things are getting slightly better. The latest release of the Global Property Guide global real estate index highlighted that prices fell in 23 countries and rose in 21 in Q3 2012. This is a big improvement on Q2 when prices fell in 25 countries and rose in only 13. In Q3 23 countries performed better than a year ago, while 20 markets performed worse.
As always there continues to be bright spots; markets and sectors where investors can capitalise on the volatility to make even greater returns, and the US is now recovering strongly as well.
According to a CoreLogic report released today US house prices grew by 7.4% year on year in November and that is including distressed sales – in fact, when you take distressed sales out of the equation prices grew by only 6.7%. It is certainly positive to see distressed home prices growing instead of falling. Having said that, the report also estimated growth for December at 7.9% including distressed sales, but at 8.4% including them. Nonetheless, the November growth is the strongest since May 2006 and the ninth consecutive month of year over year gains, and across the board indices are showing price growth and strong sales few now doubt that the US housing market is in recovery.
Many economists have pondered whether the US would lead the world out of crisis as quickly as it led it in. I guess now we will see.
Of course, the US economy has been recovering since 2010. Having said that, the fiscal cliff threatened to put an end to that by almost literally pulling the rug of support out from under the economy, with what can only be described as a rash of spending cuts and tax increases. However, in the eleventh hour the government agreed a solution whereby most of the tax increases were put off, although the spending cuts are all still hanging over the economy, as all the fiscal cliff solution did was postpone discussion on those. Meanwhile the economic recovery seems robust, for example the latest data on retail sales was very positive indicating faith in the government and in the recovery.
On the other side of the Atlantic lies a much less positive tale. However, in the UK the government has long-pulled the support rug out from under the economy and we have been languishing in deep, relentless austerity since mid-late 2010. Although the coalition government is working under "the Treasury view" – that fiscal policy has no effect on activity, even in a deep recession – whether related or not the UK economy continues to languish in stagnation as it bobbles along the bottom. At least we don't have a fiscal cliff, and if/when growth does resume then there will be no guillotine above it, but if that takes 10 or even 20 years to happen (as we have seen in Japan) then no one is going to praise the coalition's stiff-upper-lipped perseverance.
Europe isn't much better than the UK either and some would say worse as the whole EU debt crisis debacle is still hanging over its head, which of course indirectly affects the UK as well as a member of the EU. Bright spots continue to exist in Central and Eastern Europe, although they are getting fewer and further between.
According to a recent report by CBRE commercial real estate transactions in Romania are almost nowhere to be seen in the first half of last year. CB Richard Ellis reports two first-half deals were valued at EUR 55 million ($70.3 million U.S.) That valuation was the lowest in Romania in the past six years. The Diplomat Media Group in Bucharest said that Romania is still an attractive market in terms of real estate transactions but the lack of financing and the Euro zone turmoil "have raised the investment risk and quelled investment appetite. However, according to CBRE office and retail yields are both over 8% on average in Romania. Meanwhile Russia and Poland registered the highest investment volume in 1H 2012 according to CBRE.
But we must not forget Turkey. The bridge between east and west has an excellent track record of strong and stable economic growth and growth in the property market. Tourism is growing the population is growing in numbers and affluence as wages and employment increase, and all this continues to increase demand for quality property to buy and rent. Meanwhile policies enacted by the Erdogan government in 2002 continue to indirectly regulate prices (central bank has an office in every bank and banks lend against their own valuation only) and stave off any fears of a bubble. This is why Turkey, particularly the big cities like Istanbul and Izmir is attracting a lot of attention – for all the right reasons.
Arguably Turkey is more a part of Asia than Europe anyway though. Speaking of Asia, the continent continues to be the world's most resilient region with new emerging markets readily making up for any problematic ones, although in recent months parts of Latin America have begun to catch up and really fight for this throne.
In China prices grew, but then the government put its foot down to avert a bubble and the market became problematic. Hong Kong prices grew at an exceptional rate but there are also widespread fears of a bubble so many of the most cautious investors started to give it a wide birth, not that this stopped growth.
However, as these markets became problematic markets like Indonesia stepped up to the plate. Indonesia is known as one of the hottest emerging economies in the world, deserving of its place in the CIVETS and MINT groupings of leading emerging markets. Indonesia has a young growing population, a vibrant energetic workforce, increasing political stability and as a result the economy and property market are showing strong sustainable growth.
Meanwhile the Philippines is "still hanging in there" it has proven to be one of the most resilient economies in Asia, with economic growth remaining strong throughout the global crisis and beyond. The property market, which has among the lowest prices in Asia dropped off the global map during the recession, but recently developers have begun sticking their head above the parapet and reportedly being very glad that they have, particularly in Manila and the Makati financial district.
In Latin America you have Mexico performing very strongly and putting the M in the aforementioned MINT grouping, while Ecuador is putting the E in CIVETS. Not forgetting Panama, the almost-famous work to expand the Panama Canal is due for completion next year and recent reports indicate increasing interest from resort investors looking at Panama.
In the Middle East you have a resurgent Dubai making up for a UAE which continues to languish in uncertainty after underestimating the effect the crisis in Dubai could have on it. Continued stability in Lebanon is making investors pay attention to its record of economic growth and the chance to get in on a potential early-bird opportunity, but many will always be put off by the chance of bombing from Israel etc. The same goes for Iraq in terms of the increasing stability as the security situation there is much better than it was, although investors will likely watch the US withdrawal to its end before making any real moves there.
- Monday 21 January 2013