Real estate markets across the world are in a state of flux given a global macroeconomic environment entering a state of contraction to combat inflation. As central banks of leading economies act to stymy spending, borrowing costs are ticking up just as inflation-adjusted wages contract. This is facilitating significant investment opportunities in markets considered safe from the long-term perspective, like the UK.
Foreign and institutional property buyers are capitalising on the weakened pound sterling to acquire British property. Knight Frank report has forecast that investment from the Asia-Pacific alone will double, relative to last year, up to £4.1 billion for 2022 in the Central London office market. Sterling dropped by 4.5 per cent in August against the dollar, increasing international purchasing power in the UK, to $1.16, and fell 3 per cent against the euro.
The combined effect of strong demand, constricted supply, and fervent mortgage activity ahead of further base rate hikes spurred a sixth consecutive month of house price growth in July before the first fall of the year in August by 1.3 per cent to £365,173 on average. This pullback seems set to be exacerbated by slowing demand, which is forecast to reduce by up to 20 per cent over the next year, according to HSBC Holdings Plc.
Australian, Spanish, Canadian, Swedish, Polish, and Chinese markets are contending with a high proportion of mortgages due to reset in the next year, according to Bloomberg. This ranges from 55 per cent in New Zealand, of outstanding floating or fixed rate residential mortgages value to be renewed in the next year, to approximately 7 per cent in the US. Fitch data shows 93 per cent of new loans undertaken in Australia 2020 were variable rate.
Despite this short term volatility, the long term outlook is positive. Rising interest rates confer benefits to savings, which were bolstered during the pandemic lockdowns. Moreover, government interventions are helping to ease the worst anticipated effects of this market cycle including interest payment suspensions for eight months in Poland and greater stress testing in Canada.
“Strong demand for homes far outstripping available housing inventory means the housing market remains a difficult one for wannabe homeowners and those looking to climb up the property ladder.”