2021 continues to be a year for global economic growth. Some countries are showing signs of potential future struggles: South Africa and Australia, whilst some countries are in absolute crisis. Whilst the US and China are growing, what has stunted them somewhat has been the trade war. 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 to negatively disrupt economic activity, which will, in turn, have knock-on effects in property markets around the globe.
Whilst China are seemingly closer to “winning” the trade war (they have both ended up losers here), they are also deeply affected by the on-going Hong Kong protests. Hong Kong have had it worse though, as they enter their first recession for a decade.
In 2021, we can see some economies struggling, some in crisis, and some prospering – but there are no winners in a trade war. Below, we’ll address nine other trends that are expected to have an impact on global property sales as 202 unfolds.
Brexit: A one-policy election
The Brexit referendum is now almost 3.5 years ago, and what a ride it has been. The day for Brexit to go ahead was scheduled for March 29 – on this day, the UK was to leave the European Union. Well, instead what we got was a parliament that couldn’t agree on anything, the EU who, at first didn’t agree, but then decided to sit back and let Britain come to an agreement before they make any kind of gesture.
The date was pushed back several times, and now we have a general election.
The upcoming general election, this month in December 2019, may finally be the start of the end. If the Lib Dems win, Brexit is cancelled. If the Tories win, Brexit is going ahead (and providing they have enough seats, they have a better chance of agreeing on a deal). If Labour wins, a deal will be agreed, then this will be put to the public in a more specific referendum.
According to Capital Economics, a poor Brexit deal 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. Perhaps those foreign investors would come from outside of the EU, as the EU will also be affected as well as a struggling Euro.
The pound has just started to recover, so there’s certainly now more room again for it to fall depending on the result of the election.
US house prices cool
Despite the trade war, 2019 was a good year for the US economy. Employment grew, unemployment was at 50-year lows, and historically low-interest rates led to good YoY in many cities. This however comes from the end of 2018 when the US property market was booming, as it has since cooled.
The Congressional Budget Office projected GDP growth will slow to ~2% in 2020, and the Federal Reserve has indicated they will raise interest rates at least twice next year. This wasn’t far wrong, with low-to-moderate growth in Q2 2019, at 3.12% when inflation adjusted. With personal income not growing towards the end of 2019, it seems that the US property market may be in for some trouble – especially if interest rates do rise. Rates have never been this low, and for this long, so when they do inevitably rise, it will be quite a shock.
Seattle has already experienced house price decline in Q2 2019, as well as San Francisco, New York, Chicago, San Diego and Los Angeles all experiencing under 2% growth. These are all the markets in which prices are sky high due to tech jobs and such. If there’s any decline in tech in these areas (unlikely, but jobs are becoming increasingly remote), or we discover these markets to be housing bubbles, then 2020 could throw some surprises.
Higher U.S. interest rates will suck the air out of other property markets
If you didn’t already 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 increases in 2020, which is forecasted to do so, then you will find the overly leverage Hong Kong residents forking out a ton more per month on their repayments. The world is profoundly interconnected when it comes to interest rates and debt, which is why the trade war and other conflicts are such a worry.
Hong Kong Protests
Prior to the Hong Kong protests, the economy was doing reasonably well. But in an attempt to retain their autonomy and democracy, Hong Kong protests have turned ugly and have been going on for 265 days, and show no sign of stopping. Large scale protests started in June 2019 as a demonstration against the plans to allow extradition to China.
The protests have hurt the economy significantly. They’re receiving relief from around the world, but this still isn’t making up for the damage. Hong Kong’s residential transactions surged in November 2019 and home sales hit a 6-month high due to a mortgage lending policy. However, the protests are thought to be too much, and December is set for a 40% month to month sink.
2020 will essentially lay on how or if the protests are resolved, which of course, no one can predict.
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.
Additionally, small European cities such as Vilnius are experiencing growth from an expanding tech scene. The increase in jobs and low living costs could see this and other property markets blow up at the cost of the UK.
EU interest rates and schemes
Most central banks in Europe have declared interest rates to remain low, or even be cut in 2020. This is why PwC is predicting a buzzing year for the property market in Europe. Interest rates are set to remain below bond prices, which is somewhat a safety in the debt market. Taking out a home is therefore much more comforting this year knowing this in Europe.
Additionally, it’s not just interest rates that’s a key trend here. Young people remain to be an important part of the property market, but it’s not easy of course saving up. With more and more youngsters staying in their parents’ home throughout their 20s, it’s becoming easier though. On top of this, help to buy schemes such as the 25% interest ISA in the UK means that the government is lending money to help young people get their first home.
This also applies to new homes, which is making the new home market buzzing in the UK. Prices have risen as a result, knowing that many people will be benefiting from getting 20% of the 25% deposit from the government, meaning that they only need to save for 5% of the value of the home.
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. Regardless of them now somewhat being in jeopardy, many young Hong Kongers with sufficient capital have 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 are at around 2.4% YoY, not a lot when considering inflation, along with equally poor numbers found in Singapore (2.5%) and Taiwan (2%).
While property prices have stagnated recently in Australia, rental yields remain high in many centres. Brisbane homes offer a 5.3% rental yield at the end of 2019, with Adelaide at 5.4%, Hobart is hanging around 6.5%, while Canberra and Darwin have yielded just below and above 6% respectively.
With prices now out of reach for many would-be buyers, we expect growth in the Australian rental market to remain strong through 2020.
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.
With a little economic uncertainty currently however, due to significant net emigration to other countries and slowed growth, it’s not the case that the whole of South Africa can be considered a strong property market going into 202.
International property is an incredibly popular market. 2020 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 Cape Town and many Australian cities are also highly prized. 2020 should see these trends continue, especially for investors looking for a safe haven. More so, it should withstand the whirlwind from the trade war and Brexit.
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.