Property market in emerging economies outperforms UK

People in Britain are strangely obsessed by property. Many of us judge our wealth and well-being on whether the value of our house has risen or fallen by a fraction of a percentage point. This very publication tracks those changes through its carrying the latest figures from the Registers of Scotland.

It’s therefore interesting occasionally to look beyond our shores. In the past few hours, there have been a couple of reports which help to put a global perspective on the international property sector: US house sales and the RICS Global Property Survey.

The US figures took a lot of people by surprise. Just last month, the doom sayers were insisting that the market was dead in the water. It would be a long time before there would be any significant improvement. They were wrong.

Sales of new homes went by more than most analysts had forecast. True the figures were the second-lowest dating right back to 1963. But sales were up by 24 percent on those in May which prompted some at least to claim that the worst of the slump was over.

That may be over-optimistic but house buyers currently enjoy the lowest mortgage rates on record. That’s helped to underpin demand and stabilise the house building industry, enough at least for it to claim that it’s through the worst recession in around 70 years.

But it’s not all good news in the US. The number of people who can’t keep up their mortgage payments has led to an increase in foreclosures. That means there are growing numbers of unsold houses in the second-hand market (so to speak).

The result is that sales are “bouncing along the bottom” as one analyst put it, adding that it would continue to do so because there was little sign of growth in the jobs market confidence amongst consumers was weak. Nonetheless, stock markets on both side of the Atlantic rose on the news.

The message from the Royal Institution of Chartered Surveyors (RICS) was that property markets in the more dynamic economies of South America, Asia and Eastern Europe were outperforming those in the UK and Eurozone.

It rightly points out that tough measures have been taken to reduce fiscal deficits in those economies and those all appear to be having a more pronounced impact on the appetite of businesses to take up new space.

It’s true that their survey concentrates on the commercial sector but there are figures which help to point to a trend. The most significant is that surveyors in the US have reported a rise in tenant demand across the board for the first time in 3 years.

So which countries are reporting healthy growth. Perhaps surprisingly in Europe, France is bucking the negative trend. The market there is showing signs of an upturn. The authors claim that this reflects, in part, “the relatively resilient performance from the domestic economy”.

Elsewhere, Brazil is leading the way. Surveyors there are reporting a rise in already buoyant demand. Since the last quarter, demand for space has gone up from 70 to 85 percent. Markets in countries as diverse as Peru, Argentina, India and China are also performing well.

The RICS report shows some surprise that the Chinese market still remains strong because the Government there had brought in measures to curtail a property boom. It says that the indicators for occupier demand all remain positive.

So where does that leave the UK? In the commercial sector, demand is falling for the first time in a year. There are also worrying figures from Pricewaterhousecoopers which put out some negative predictions on the future of house prices here.

It claims that there’s a 70% chance that, in 2015, UK house prices will still be below the levels of three years ago, when the market was at its peak. In fact, it even thinks there’s a 50% chance of their still being below the 2007 rates in 2020, despite a predicted recovery in values.

There are some who claim that UK house prices as a whole are 20% over-valued. Professor Donald Macrae, Chief Economist at Bank of Scotland, isn’t one of them. But he doesn’t think there will be anything other than a “gradual increase” in house values north of the border.

“Prices fell during the worst part of the recession,” he says, “but they’ve started to recover though rather slowly. It’s also worth noting that the number of transactions is half the number that went though before the downturn.”

He argues that the housing market depends on the general economic situation and he’s sceptical of the latest Government figures on the country’s Gross Domestic Product. “A lot of that was in construction,” he says, “and that won’t be as strong in the next quarter’s results.

“Consumer confidence,” he adds, “is still half of what it was before the recession. But I don’t see a slump in prices because aspiration levels remain high. But don’t expect house prices to rise any faster than earnings – and they’re not rising by much at all.”

He also cautious about reading too much into international comparisons. There aren’t that many countries, especially in Europe, where buying your own home is the norm. Elsewhere, the majority are happy to rent. It’s only the people in Britain who are strangely obsessed with property.

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