Property Market News and a look forward to 2009 for British Property Investors

Coming towards the end of 2008, news from property markets around the world seems to be more of the same. So what is end-2008 looking like, and what to look forward to in 2009?

British Property prices

British property prices fell almost 20% in 2008, with the sharpest falls coming in the last three months of the year, particularly in London. London prime property prices are falling like the proverbial lead balloon, losing value heavily in the last three months of 2008. Rent prices in the super-prime districts like Knightsbridge, Mayfair and Chelsea fell 10% between September and December. Until the banking sector recovers (if it ever does) this will continue, and I suspect we are going to see similar falls early 2009.

Coldbath Fields Prison Treadmill

The short term future for British prices seems an inevitable down wards trend. Mr. Brown may think giving a 2-year moratorium on mortgage payments to people with mortgages who have been made redundant will prevent the banks from repossessing houses, but I seriously doubt the average mortgagee is going to buy this particular millstone to hang around his neck. Prices will continue to fall, and at end two years, after missed payments and interest have been added to the principal loan, the mortgagee is going to find himself with a mortgage four times the size of his property value. All this will do is delay the process. Free rent for two years, then a quick bankruptcy when payments start up again. Expect the law to be changed soon to stop personal bankruptcy being an option when bought about by defaulting on mortgage payments, and look forward to new debtor’s prisons being built. I see this as the new growth area in Britain. I wonder if there are plans to re-introduce the treadmill…..

Allowing the pound to fall to its lowest levels against the Euro since the Euro was printed may have a long-term positive effect on the manufacturing sector, but this will take several years to come to fruition. Assuming we manage to avoid complete collapse. But – for the moment, anyone looking for property in the Eurozone and spending pounds – See you in 2011. When the dollar crashes in 2009, maybe pick up a bargain in Florida instead? There is a serious proposal in front of Congress to allow retirees from abroad permanent visas, so who knows?

I do wonder what Mr Darling and Mr Brown think they are playing at. Encouraging the banks to start lending, yet at the same time demanding stricter controls. Look for yet another massive injection of capital into British banks in 2009 – once the dynamic duo work out that the capital already injected has disappeared down a black hole in the Cayman islands. Unfortunately, this time, they are going to have to print it. “Money supply growth.” Inflation will be the next pressure on downwards housing prices in the UK.

One good thing to come out of the crash in the UK (and make no mistake, this is a crash, not a gentle re-adjustment), is that sooner or later, first-time buyers will start getting back into the market. This will signal the best time to start buying property as an investment in the UK again. The Times has a list of predictions from “property professionals,” and nary a one of them thinks prices in the UK will fall more than 10% in 2009. The one exception is Graham Beale of Nationwide Building Society (or is that bank?) who believes a 25% correction is in order.

The one thing they all agree on is prices are going to fall and it will be some time before a recovery. Unlikely in 2009, we feel, mostly thanks to the doomed-to-failure government interference in the correction process. Mr. Brown is not even man enough to stand up and admit his part in the financial crisis, preferring instead to blame it all on the “global downturn.” Empty rhetoric unfortunately. Perhaps one day, we will have an elected official prepared to accept the consequences of his actions and be held accountable? Where did that other advocate of borrowing ’till you go bust, Tony Blair, disappear to?

Expect property prices in the UK to return to “bricks and mortar,” value, as they are already doing in the United States. Prices to bottom out end-2010, not before.

Best Investment Markets for 2009

The fall in value of the pound puts just about all the traditional British investment hotspots like France and Spain out of reach. Almost at parity, prices in the Eurozone have just increased 20% over the last two months. Although, even with the horrendous exchange rate, Spain will start to look attractive again soon. Not as a short term investment, but certainly as a second home or retirement destination. Spain has numerous issues to overcome, not least of which is the desire to generate tax revenue from expats, especially those not living in the property. But the weather ! Ah the weather.

Dubai has it’s own issues also, and it is estimated that as many as 45,000 labourers need to be removed immediately from the country as the developers slow down, stall or cancel projects. There is an estimated 3 million Indian, Bangladeshi and Pakistani workers in the UAE. Many of them will soon be unemployed. That is a lot of unhappy labourers. Never treated very well in while they were working, there is a good chance they will be treated even worse when there is no work. A kettle waiting to boil.

I see a few estate agents now pushing the idea of Turkey as a good bet. Turkey is a Muslim country. Turkey has already flip-flopped on allowing foreign property ownership. There are rumors that Turkey will allow foreign nationals to buy property in Turkey even if there is no reciprocal agreement. There are rumors that Turkey is trying to pressure the EU into allowing it to continue current restrictions on foreigners buying property in Turkey for up to 12 years after Turkey joins the European Union? If it is allowed to join. I wouldn’t touch Turkey with a barge pole. A fuller explanation of the mess is available here.

Distressed property is the logical place to look for investment opportunities in 2009. Financially distressed. There will be record repossessions in the UK in 2009, and record foreclosures in the US. At the right price, bargains will be available in both markets. And the French and Spanish markets also. Many Brits are bailing out of France, and hoping to sell at a discount, even to the extend of selling in pounds to UK buyers.