Global Real Estate Conditions
Herald, 5:00AM Saturday April 28, 2007
By Jane Padgham
As New Zealand's house prices continue to rise so does the number of people who cannot afford to buy. The average sale price for a property is now $363,188. But elsewhere there are signs the global boom could be coming to an end. Panic selling of Spanish real estate stocks this week sent shudders through property markets. As investors bet that Spain's 10-year construction boom is finally over, we take a look at global property hotspots to see who will be the next casualty.
Spain
For those fantasising about sipping sangria while watching the value of their Spanish holiday-home soar, the dream is over. After five years of double-digit growth, house prices rose by a relatively modest 9 per cent in 2006 and are expected to slow dramatically this year.
A constant stream of bad news has shaken foreign buyer confidence in Spanish property, while relatively high prices and competition from cheaper destinations such as Morocco and Bulgaria have drained demand. Corruption scandals linked to property deals have been rife - in Marbella, several municipal councillors are in jail awaiting trial for allegedly taking kickbacks.
Mark Stucklin, who runs the Spanish Property Insight consultancy, believes house prices in many parts of Spain will stagnate this year, and stagnate or fall next year. "I think attractive properties in good areas and on the best developments will hold their value in the short-term, and deliver solid returns in the long-term. But when it comes to mediocre property in over-developed areas, all I can say is there is far too much of it around, and I am not optimistic about it," he said.
United States
The US housing slowdown has been dramatic. Just 12 months ago, house price inflation was running at more than 13 per cent. By the end of 2006, it had decelerated to 4 per cent. Today, prices are barely rising.
The writing was on the wall once first-time buyers could no longer afford to buy using traditional financing options. Instead, they were forced to take out interest-only mortgages and expensive loans that did not require a deposit. Prices continued to rise for a time thanks to property speculators and the easing of lending criteria to help first-time buyers.
But a surge in arrears and defaults, and meltdown in the sub-prime mortgage market - which specialises in lending to borrowers with patchy credit records - was the final straw. Paul Ashworth, senior US economist at Capital Economics, warns that excess supply caused by a flood of repossessed properties could translate into double-digit annual declines in house prices.
United Kingdom
Britain's seemingly unstoppable housing market has so far defied predictions of a sharp slowdown, but there are tentative signs that higher interest rates and stretched affordability are starting to take their toll. Most of the recent reports suggest that prices are still rising, but at a slower pace than at the end of last year. The average price of a home rose by 2.8 per cent in the first three months of this year compared with 4.2 per cent in the previous quarter, according to Halifax, the country's biggest mortgage lender.
Some regions are still doing well, while others are struggling. The traditional north-south divide is getting wider - over the past year house prices in the south of England have risen more than twice as much as those in the north. Northern Ireland, meanwhile, is enjoying exponential growth.
The consensus view is that the market will slow, but not crash. There are still a few doom-mongers out there, but most experts are sanguine.
London
The capital's housing market continues to power ahead, boosted by foreign billionaires and City bankers eager to spend their bumper bonus cheques on bricks and mortar. Million pound-plus properties in London's swankiest areas, such as Belgravia and Mayfair, have surged by a staggering 32 per cent in the past year, according to estate agent Knight Frank.
The mainstream market is also booming. Asking prices rose by 3.7 per cent during March alone, the equivalent of £13,000 on a typical property, according to property website Rightmove. That took the average to £379,846 ($1 million), up 25 per cent on a year earlier.
Homeowners in London are benefiting from the buoyant financial and business services sectors, but also a chronic shortage of properties on the market. Most homes in the capital are snapped up just 65 days after the for sale sign is hoisted. Tales of gazumping and sealed bids, not seen since the late-80s boom, are common.
Mumbai
US tycoon Samuel Zell told a gathering of Indian property executives this week it was "mental masturbation" to believe there were endless riches for investors in India's runaway housing market.
Coming from a man nicknamed "The Grave Dancer", the warning was perhaps not that unexpected. For the developers and fund managers who were listening, however, the only question remaining was how far property prices will fall.
As the hub of India's technology boom, Mumbai has become the country's property hotspot. Prime residential prices have doubled in just two years. More Indians are buying homes and real estate is also attracting speculative investors, many of them from abroad. But in a city where half the population still lives in a slum, there is a growing feeling that the market is on the brink of a collapse.
The last time a property bubble burst in India - between 1995 and 2001 - prices slumped by up to 70 per cent. This time, a fall of 30 to 40 per cent is on the cards.
Dubai
The sun always shines, salaries are tax-free, and the shopping and leisure facilities rival any other major global city - welcome to Dubai, the largest of the states which make up the United Arab Emirates, which has begun weaning itself off oil and proving its credentials as a property paradise.
An estimated 15 to 25 per cent of the world's cranes are in Dubai, symbolic of a market in such a hurry to build (75,000 new units by 2008; 260,000 units by 2015) that experts warn oversupply could become a real issue.
For now, the appeal is obvious: developments are being built at a fraction of the price a similar property would fetch in Europe, and investors who purchased off-plan a couple of years ago have already seen their investment grow. In the longer-term, however, it is hard to know if this is sustainable popularity or merely a boom-time feeding frenzy.
Latvia
The surprise star-performer in estate agent Knight Frank's latest global house price index is the tiny Baltic nation of Latvia. House prices in the country's capital, Riga, have leapt by a staggering 66 per cent in the past year thanks to a red-hot economy fuelled by booming consumption and easy credit.
Liam Bailey, Knight Frank's head of residential research, says that since joining the European Union in 2004, Latvia's property market has been a magnet for investors from Germany, Russia and Scandinavia. Soviet-era buildings have been comprehensively spruced up and new properties built to much higher specifications, also boosting prices.
But there is a growing feeling that the market is an accident waiting to happen. In an attempt to prevent the bubble bursting, Latvia's Government last month pushed through plans to cool the economy. Measures include taxing profits from the sale of real estate in the first three years of ownership, an extension from the current one-year rule.
Australia
For anxious homeowners wondering whether the housing boom will inevitably turn to bust, Australia's experience of the past three years provides some comfort. House prices in Australia doubled between 1996 and 2003. A flurry of interest rate rises took the wind out of the market's sails, but the slowdown was remarkably modest by historical standards. The much-vaunted soft landing was achieved.
Since then, the market has shown clear signs of strengthening again, clocking up 8.3 per cent growth last year against 2.3 per cent in 2005. Indeed, the recovery has been such that affordability is now considered the worst on record. Low unemployment, a strong equities market and the commodities boom all point to another year of solid growth.
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By Jane Padgham
As New Zealand's house prices continue to rise so does the number of people who cannot afford to buy. The average sale price for a property is now $363,188. But elsewhere there are signs the global boom could be coming to an end. Panic selling of Spanish real estate stocks this week sent shudders through property markets. As investors bet that Spain's 10-year construction boom is finally over, we take a look at global property hotspots to see who will be the next casualty.
Spain
For those fantasising about sipping sangria while watching the value of their Spanish holiday-home soar, the dream is over. After five years of double-digit growth, house prices rose by a relatively modest 9 per cent in 2006 and are expected to slow dramatically this year.
A constant stream of bad news has shaken foreign buyer confidence in Spanish property, while relatively high prices and competition from cheaper destinations such as Morocco and Bulgaria have drained demand. Corruption scandals linked to property deals have been rife - in Marbella, several municipal councillors are in jail awaiting trial for allegedly taking kickbacks.
Mark Stucklin, who runs the Spanish Property Insight consultancy, believes house prices in many parts of Spain will stagnate this year, and stagnate or fall next year. "I think attractive properties in good areas and on the best developments will hold their value in the short-term, and deliver solid returns in the long-term. But when it comes to mediocre property in over-developed areas, all I can say is there is far too much of it around, and I am not optimistic about it," he said.
United States
The US housing slowdown has been dramatic. Just 12 months ago, house price inflation was running at more than 13 per cent. By the end of 2006, it had decelerated to 4 per cent. Today, prices are barely rising.
The writing was on the wall once first-time buyers could no longer afford to buy using traditional financing options. Instead, they were forced to take out interest-only mortgages and expensive loans that did not require a deposit. Prices continued to rise for a time thanks to property speculators and the easing of lending criteria to help first-time buyers.
But a surge in arrears and defaults, and meltdown in the sub-prime mortgage market - which specialises in lending to borrowers with patchy credit records - was the final straw. Paul Ashworth, senior US economist at Capital Economics, warns that excess supply caused by a flood of repossessed properties could translate into double-digit annual declines in house prices.
United Kingdom
Britain's seemingly unstoppable housing market has so far defied predictions of a sharp slowdown, but there are tentative signs that higher interest rates and stretched affordability are starting to take their toll. Most of the recent reports suggest that prices are still rising, but at a slower pace than at the end of last year. The average price of a home rose by 2.8 per cent in the first three months of this year compared with 4.2 per cent in the previous quarter, according to Halifax, the country's biggest mortgage lender.
Some regions are still doing well, while others are struggling. The traditional north-south divide is getting wider - over the past year house prices in the south of England have risen more than twice as much as those in the north. Northern Ireland, meanwhile, is enjoying exponential growth.
The consensus view is that the market will slow, but not crash. There are still a few doom-mongers out there, but most experts are sanguine.
London
The capital's housing market continues to power ahead, boosted by foreign billionaires and City bankers eager to spend their bumper bonus cheques on bricks and mortar. Million pound-plus properties in London's swankiest areas, such as Belgravia and Mayfair, have surged by a staggering 32 per cent in the past year, according to estate agent Knight Frank.
The mainstream market is also booming. Asking prices rose by 3.7 per cent during March alone, the equivalent of £13,000 on a typical property, according to property website Rightmove. That took the average to £379,846 ($1 million), up 25 per cent on a year earlier.
Homeowners in London are benefiting from the buoyant financial and business services sectors, but also a chronic shortage of properties on the market. Most homes in the capital are snapped up just 65 days after the for sale sign is hoisted. Tales of gazumping and sealed bids, not seen since the late-80s boom, are common.
Mumbai
US tycoon Samuel Zell told a gathering of Indian property executives this week it was "mental masturbation" to believe there were endless riches for investors in India's runaway housing market.
Coming from a man nicknamed "The Grave Dancer", the warning was perhaps not that unexpected. For the developers and fund managers who were listening, however, the only question remaining was how far property prices will fall.
As the hub of India's technology boom, Mumbai has become the country's property hotspot. Prime residential prices have doubled in just two years. More Indians are buying homes and real estate is also attracting speculative investors, many of them from abroad. But in a city where half the population still lives in a slum, there is a growing feeling that the market is on the brink of a collapse.
The last time a property bubble burst in India - between 1995 and 2001 - prices slumped by up to 70 per cent. This time, a fall of 30 to 40 per cent is on the cards.
Dubai
The sun always shines, salaries are tax-free, and the shopping and leisure facilities rival any other major global city - welcome to Dubai, the largest of the states which make up the United Arab Emirates, which has begun weaning itself off oil and proving its credentials as a property paradise.
An estimated 15 to 25 per cent of the world's cranes are in Dubai, symbolic of a market in such a hurry to build (75,000 new units by 2008; 260,000 units by 2015) that experts warn oversupply could become a real issue.
For now, the appeal is obvious: developments are being built at a fraction of the price a similar property would fetch in Europe, and investors who purchased off-plan a couple of years ago have already seen their investment grow. In the longer-term, however, it is hard to know if this is sustainable popularity or merely a boom-time feeding frenzy.
Latvia
The surprise star-performer in estate agent Knight Frank's latest global house price index is the tiny Baltic nation of Latvia. House prices in the country's capital, Riga, have leapt by a staggering 66 per cent in the past year thanks to a red-hot economy fuelled by booming consumption and easy credit.
Liam Bailey, Knight Frank's head of residential research, says that since joining the European Union in 2004, Latvia's property market has been a magnet for investors from Germany, Russia and Scandinavia. Soviet-era buildings have been comprehensively spruced up and new properties built to much higher specifications, also boosting prices.
But there is a growing feeling that the market is an accident waiting to happen. In an attempt to prevent the bubble bursting, Latvia's Government last month pushed through plans to cool the economy. Measures include taxing profits from the sale of real estate in the first three years of ownership, an extension from the current one-year rule.
Australia
For anxious homeowners wondering whether the housing boom will inevitably turn to bust, Australia's experience of the past three years provides some comfort. House prices in Australia doubled between 1996 and 2003. A flurry of interest rate rises took the wind out of the market's sails, but the slowdown was remarkably modest by historical standards. The much-vaunted soft landing was achieved.
Since then, the market has shown clear signs of strengthening again, clocking up 8.3 per cent growth last year against 2.3 per cent in 2005. Indeed, the recovery has been such that affordability is now considered the worst on record. Low unemployment, a strong equities market and the commodities boom all point to another year of solid growth.
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