Get to know us and follow our latest adventures both in the office and further afield
2017 Global Market Predictions
December 7, 2016Article by Ray Withers
As one of the most eccentric years in recent memory draws to a close, we at Property Frontiers have relished the healthy exercise of looking ahead to the next one.
After plenty of practice in 2016, we feel primed to stay on the ball and alert to the new opportunities that are sure to reveal themselves in potentially turbulent times.
Now liberated of the illusion of certainty, yet also emboldened to better the performance of political pollsters in 2016, we cheerfully stick out our necks with some predictions about the global property market in 2017.
So read on for our tips on the regions and trends that deserve your attention, and perhaps your cash, in the coming year.
UK – Era of the Staycation
In 2009, during the height of the recession, UK residents made 15.5% fewer overseas trips and 17% more domestic trips – feeling less flush made a great excuse to explore our own back garden. Since then, although international travel has picked up again, British holidays are still gaining in popularity: the number of domestic trips in 2015 was up by 11% on the previous year.
The referendum on UK membership of the EU dominated this summer, and its repercussions may change how we experience summers to come. The pound ends the year a shade above a multi-year low against the euro, and European visas (for both entry and exit) are the subject of heated debate. It is not unreasonable to assume that the sunny side of that story will involve a revival of domestic holidaymaking to make 2009 look like dipping a toe in the pool. This is the new era of the staycation.
While residential rental yields are likely to remain strong (outside of London), with so many unknowns house price changes remain tricky to forecast. For UK property investing in 2017, we believe that holiday homes, coastal cottages, and hotels will become a well-recognised asset class for investors looking for a favourable stamp duty environment, high yields and insulation from market uncertainty. To maximise returns, look out for regions with timeless natural or cultural appeal, unflagging visitor numbers, and an undersupply on the hospitality market.
UK – The Hangman Loosens the Noose on LA _DL_RDS
Nestled within an eminently transparent and sensible campaign platform, Philip Hammond’s 1994 election material slipped in a humdinger: ‘hanging for premeditated murder’. The immediate impression given by this blast from the electoral past is that our new Chancellor is a glutton for punishment. The second, more important conclusion has emerged over time: he is an adaptive politician who has repeatedly left his fetishes (like hanging) at the door and got on with the job at hand.
The question is: when it comes to fiscal policy impacting landlords, will the new Chancellor play the hangman or the handyman? Going out on a limb, we think the Autumn Statement was a red herring. Letting agents’ fees are unjustly heaped upon tenants, and putting the onus on landlords will likely nudge agents to compete for their business with less wacky fees. After Osborne’s slugfest with the landlord piñata went down so well, Hammond felt compelled to give a public but paltry poke.
With rock bottom mortgage rates and rent increases of 19% forecast for the next five years, it is still a good time to be a landlord. We predict that as the changes to buy-to-let mortgage tax relief are gradually phased in from 2017, the supply of rental properties will decrease to the extent that the government steps in with some affirmative action for landlords and the build-to-rent sector.
The lack of supply on the market could well spell a good opportunity for aspiring investors. University towns like Bristol and Cambridge as well as secondary cities like Liverpool, Manchester and Sheffield should remain on the radar for strong yields next year. One word of advice though, the market is becoming increasingly noisy and investors should conduct thorough research before deciding where to commit.
EUROPE – Secondary Cities Withstand Shaky Politics
Europe’s fractious politics will have a big year in 2017. With populist movements gaining ground and parts of Eastern Europe led back out into the cold by autocratic-leaning governments, the hopes of the political establishment will be pinned on contentious elections in some of the biggest European economies: France, Germany, the Netherlands, and Norway.
For an early indication of how those decisions might play out and affect property markets, look to Italy and Austria in the aftermath of their December 2016 votes. The handy defeat of Renzi’s constitutional referendum in Italy could cause problems for struggling banks that may infect the wider economy and impact mortgage lending, though political change could be positive.
The victory of the liberal over the far-right candidate in Austria’s presidential election, however, favoured stability and European integration. Given that Vienna is unlikely to end its seven-year streak atop Mercer’s global quality of living ranking and its housing market is just 20% owner occupied, the result may well safeguard the city’s growing reputation as a buy-to-let hotspot.
Other cities we think merit attention for high yields in 2017 include Lisbon (whose tech clusters and historic centre attract increasing numbers), Utrecht (benefitting from the Netherlands’ continent-beating 6.57% yields but without Amsterdam’s bubbly prices), and Barcelona (still down on its peak, with a growing business appeal to equal its lifestyle offering).
EUROPE – Brexit’s Beneficiaries
The Centre for Cities has identified the major UK cities’ continental counterparts by the proportion of jobs in each sector of the economy. When (or if) Britain triggers Article 50 in 2017, will we see bankers transfer from London to Amsterdam, startups relocate from Manchester to Hamburg, or shipping lines reroute from Liverpool to Bordeaux?
While large scale migrations are unlikely to materialise next year, the pressure will be on for British cities to reassert their global appeal and improve productivity if the property market is to bounce along at 8% growth again in 2017.
European cities will be putting up a strong fight, and battling among themselves to skim off what talent they can. Frankfurt and Paris will make particularly aggressive bids, but they – and salivating rivals like Madrid and Dublin – will need to need to drastically improve their supply of office space if they are to become truly viable alternatives. London’s shard-high rents have plenty of room to fall if warding off the challengers comes to that.
We may even see a new trend for Brexit-conscious and staycation-phobic Brits doubling up their holiday or retirement homes as tickets to visa-free travel. Spain and Portugal could see a steep upswing in applications for their ‘golden visas’ – offered with property investments totalling more than €500,000.
NORTH AMERICA – Punching Above Their Weight?
The US rocketed past the UK as the stage for the biggest political upset of 2016 with the election of Donald Trump. Markets went from bruised to braggadocious about as quickly as the man himself, and the S&P Case-Shiller home price index ends the year at a new record peak. Such punchy growth will likely continue into 2017, unless political scandal of one sort or another steals its limelight and its oomph. Even if the market proves to be overheated, more responsible lending means a sub-prime-scale implosion is a very distant possibility.
The other theme of US house price growth, its patchy distribution, may also become more pronounced. Although it remains expensive, New York home values appear comatose in comparison to Portland and Seattle, where prices grew by 12% and 11% respectively in the year to September. Yet lunatic price hikes across the border in Canada, make even those numbers look comparatively demure.
Toronto closes out 2016 leading the Teranet and National Bank of Canada index with an insane weighted growth rate of 34.6%. Liberal, business-friendly cities like Toronto, Vancouver, and Montreal are becoming honeypots for the young, talented global workforce, pushing up demand there and decimating lesser Canadian towns. While the fundamentals in the big cities aren’t concerning in that respect, we would be very surprised if the Canadian market isn’t due a correction in 2017.
With greater personal wealth supported by the accelerating appreciation of their homes, the flight patterns of snowbirds from Canada and the Pacific Northwest (who winter in warmer climes) are something wise investors in Florida and elsewhere should heed closely.
An old favourite market of Property Frontiers, SOUTH AMERICA may become a less daunting investment prospect in 2017, with Brazil and Argentina poised to shake off the political deadlock of last year and Colombia coming closer to peace. Our pick for an enticing investment target is Peru, where a new business-friendly government could revive the property boom and Lima’s hotel market should benefit from fast-growing visitor numbers, a generous tourist spend, and limited supply coming on to the market.
In AFRICA and the MIDDLE EAST, the callous price of oil has played havoc with economies and currencies. Property markets could well see a boost if the price of oil finally rallies in 2017.
This could especially benefit countries like Ghana and Uganda, where national economies are sufficiently diversified to avoid the pitfalls that accompany surprise discoveries of the black stuff. Land development is already rife in their respective capitals of Accra and Kampala.
The United Arab Emirates should be able to cement a stately comeback, with new permit rules and a more mature market reassuring longer-term investors. Symbolic of this trend, Dubai may be one of the only global property markets where an extended slump in 2016 was welcomed as a healthy correction rather than a downturn.
Investors have been glued to Iran’s gradual unfurling onto the global stage and will continue to look on, though caution is advised until President Trump’s official stance (if such a thing exists) makes itself clear.
In ASIA, Indonesia and Vietnam are making very encouraging moves to attract foreign investors, and boast the economic growth to back it up. 2017 will be crucial for testing how well these new rules work in practice, and early birds who plan appropriately could catch the juiciest worms.
China might decide to employ its long-held habit of state intervention for the forces of good to re-jig its land imbalance and loosen the notoriously prohibitive hukou residency permit system. This would allow demand and supply to better align and let some steam out of the Chinese property market’s swelling paper lantern.
Our client database reveals a growing share of Indian investors contending with their Chinese counterparts as the dominant group of family buyers casting a wider net for safe havens overseas. Though the UK has not lost its appeal, we might expect to see them target regions closer to home as traditional Western markets start to feel more volatile.