2019 was shaping up to be a solid year for global economic growth. As January 2018 dawned, U.S. President Donald Trump changed all that. He started applying tariffs to a wide range of imports – aluminium, steel, handbags – few sectors escaped unscathed.
Ranging from 25-50%, they targeted long-time trading partners and allies – China, Canada, Mexico, and the EU were all affected. These provocative actions have already had a major impact. According to Reuters, the IMF cut its growth forecast mid-year for 2019 from 3.9 to 3.7% – this is the first time this has ever happened.
Why are we talking about this in a guide about real estate trends? It’s simple – these regressive taxes have the potential negatively disrupt economic activity, which will, in turn, have knock-on effects in property markets around the globe.
We are already seeing this in America. Earlier this year, General Motors warned Trump not to raise tariffs on steel and aluminium. In November, GM announced the shuttering of four plants in the US, costing 14,000 workers their jobs.
The consequences of this global trade war are expected to play out like this – exporters will ship less product to America and importers will pay more for their goods. As time goes by, this will result in less prosperity for owners, shareholders, and workers on both sides of the dispute.
And so, our first property trend for the coming year: many buyers around the world will have less disposable income in 2019 due to the trade war. This will result in a slowdown in sales, causing prices to stagnate or decline in vulnerable markets.
Below, we’ll address nine other trends that are expected to have an impact on global property sales as of 2019 unfolds.
Brexit: Hard landing, no deal, or re-vote?
The trade war notwithstanding, the outcome of Brexit will be THE property story of 2019. Brexit Day is currently scheduled for March 29 – on this day, the UK will leave the European Union. With only one quarter to go, however, it remains to be seen how this exit will transpire.
As of December 2018, Theresa May’s Tories have tabled a Brexit deal, but it may not pass Parliament. This has increased the odds of a no-deal Brexit. If this occurs, severe disruptions to supply chains will occur, which could lead businesses in the UK to lay off large portions of their staff.
According to Capital Economics, this could cause commercial real estate prices to plummet by as much as 47%. The outlook for residential prices isn’t much rosier – the market is down 15% year-over-year, with an additional drop of 7.5% expected over the next 18 months – and that’s assuming an orderly Brexit.
It’s not all bad, though – a hard or no-deal Brexit would crash the Pound Sterling. This would be unquestionably bad for locals, but it would create a once-in-a-lifetime buying opportunity for foreign investors. Those with a stomach for economic chaos could end up sitting pretty as the dust from a hard/no-deal Brexit settled – but let’s hope things work out okay for our British friends.
Property prices stagnating, but rental boom set to take off in America
2018 was a good year to enter the US housing market. Employment growth, unemployment at 50-year lows, and historically low-interest rates led to double-digit price increases YoY in markets like Seattle (13%), Orlando (11%), and Denver (10%).
However, it appears that price growth will soon slow down. The Congressional Budget Office projects GDP growth will slow to 2.4% in 2019, and the Federal Reserve has indicated they will raise interest rates at least twice next year. Add in the economic fallout of the Trump tariffs and it’s conceivable that housing prices may stagnate or even decline in the near future.
However, the American rental market has a bright future ahead of it. Vacancy rates have been stuck in the 7-7.5% range over the past several years. This is the lowest its been since the 1970s and the first half of the 1980s when interest rates were volatile and often north of 10%.
The affordability crisis will be the main driver behind an expected surge in rental construction. 50% of renters currently shell out more than 30% of their income on housing. With downsizing boomers, immigrants, and cash-strapped Millennials applying upward price pressure on the existing stock, the environment for rental construction is expected to become more favourable in 2019.
Higher U.S. interest rates will suck the air out of other property markets
Don’t understand the enormous influence the USA has over the global economy? Every time the Fed increases interest rates, it’s not just homeowners and buyers that feel the squeeze – it applies pressure to many foreign markets as well.
Here’s why – numerous jurisdictions around the world have adopted the US dollar, or they peg their currency to it. Every time the Federal Reserve increases interest rates, it increases the cost of borrowing money in these places.
Hong Kong is a prime example – real estate there is already tremendously expensive. The average 600 square foot condo costs $928,000 USD – not exactly an affordable starter home. Assuming the present annual mortgage rate of 2.475% rises to 3% in 2019, those who buy later in 2019 can expect to pay $4,000 more in interest compared to those who bought a comparable unit in 2018.
Persistently low oil prices to weigh on Russian markets
Increasingly, oil and gas appear to be becoming a sunset industry. Governments worldwide are setting drop-dead dates for the sale of ICE cars, alternative energy industries are experiencing exponential growth, and a flood of new oil supply is gushing onto the world market from American wells.
This is bad news for markets dependent on oil and gas activity. Venezuela is the poster child for O&G suffering, but Russia is experiencing a great deal of pain as well, as oil exports make up 16% of its GDP.
This has caused real estate prices in Russia to stagnate since 2015. After two straight YoY decreases of 0.5% in 2015/2016, a 1% rise in 2017 brought price growth back to nil. With another crash in prices after a rally to $70 mid-year, though, 2019 is looking like another disappointing year for property investment in the Russian Federation.
EU nationals, firms departing pre-Brexit may spur property uptick
While a no-deal or a hard Brexit will also affect Europe economically, certain real estate markets in the EU may see a short-term benefit. According to a report in the Guardian in November 2018, more than 132,000 EU workers had left their jobs in the UK over the past year.
Most departed to their home countries, many of which are in Central and Eastern Europe. With a great deal of uncertainty surrounding the resolution of Brexit, now might be a great time to invest in a rental unit in Warsaw, Bucharest, or Budapest.
Lisbon likely the 2019 property investment capital of Europe
Fuelled by a surging economy, increased tourism, and prices that are markedly lower than wealthier parts of Europe, Lisbon has been crowned the 2019 real estate investment capital of Europe by PricewaterhouseCoopers.
Why is Lisbon getting its moment in the sun? 600 square foot condos can be had in Lisbon city centre for around $167,000, while similar quality units are available for much cheaper prices in outlying areas.
With rental yields ranging between 5.4-6.7%, 2019 is the time to buy, as prices are expected to escalate dramatically in the coming years.
Co-living growing in popularity as Asian markets near the possible top
As mentioned earlier, real estate prices in Hong Kong have reached ludicrous levels. Rather than settle for the grim reality of coffin homes, young Hong Kongers with sufficient capital has opted to embrace co-living.
While rooms in these developments are tiny by American standards (100 square feet), they come with an en-suite bathroom and boast modern furnishings. Communal kitchen and living areas are similarly outfitted, making these developments attractive to younger, middle-class renters.
With between 70 to 160 rooms in these developments and rents ranging in price from $900 to $1,750 USD per month, investing in these complexes could make for an intriguing play in a rapidly maturing market.
Rental units in Sydney, Melbourne still a solid play
Rental yields in many Asian-Pacific markets have been disappointing lately. Properties in Japan and Hong Kong hover in the mid 2% range, with worse numbers being found in Singapore (2.5%) and Taiwan (2%).
While property prices have stagnated recently in Australia, rental yields remain high in many centres. Brisbane and Adelaide’s units offer a 5% yield, Hobart is hanging around 5.5%, while Canberra and Darwin have yielded just below 6%.
With prices now out of reach for many would-be buyers, we expect growth in the Australian rental market to remain strong through 2019.
Cape Town offers great yields, low barriers to foreign investors
Collapses in commodity prices and the fallout of the Zuma-Gupta affair have greatly weakened the Rand through the 2010s. While painful for locals, this has led to incredible deals for foreign investors. The twin factors of a weak economy and poor domestic affordability have given those in investment real estate a slew of excellent buying opportunities in the Cape Town metropolitan area.
Deals are especially plentiful in up-and-coming neighbourhoods like Salt River, Woodstock, and Observatory. Here, flats can be had for as little as $70,000 USD – with rental yields in the 5% range, a solid profit can be made now, with improvements in these numbers expected as the economy improves.
International property is an incredibly popular market now. 2018 has seen global property investment rising, and the trends are expected to continue. More investors are going to buy an asset overseas. Offices and co-working spaces are very popular. Residential properties in hotspots such as Lisbon, Portugal are also highly prized. 2019 should see these trends continue, especially for investors looking for a safe haven.
If you are buying property abroad be sure to check our top property tips, best property blogs, and view specialized currency services for property investors, such as the ones offered by Currencies Direct.