CAIRO – 23 March 2018: With “the wind back in Europe’s sail,” as the European Commission President, Jean-Claude Juncker, put it during his State of the Union address in September 2017, diversifying your portfolio into euro-valued real estate is a better idea today than it has been since 2003. The dollar and the British Pound are close to par with the euro, providing foreign-currency-holding-Egyptians, who mostly, according to statistics, keep their money in U.S. Dollars, with more purchasing power in Europe. According to property market researcher and analyst Kathleen Peddicord, U.S. dollar holders today have more purchasing power than they did since the early 2000s.
Trends for 2018 suggest that property investment in Europe is still on the rise. Despite risk and volatility being with us in 2018, as it was in 2017, according to Cushman & Wakefield’s 2017 and 2018 Market Outlook Reports, real estate is a relatively safe investment option in Europe.
As the move against globalisation takes a backseat in 2018, capital flows across the world are increasing. Capital-holders have continued to seek the comfort and relative certainty of real estate due to the unstable macro-environment underpinned by political change, uncertainty, the continuous rise of the alt-right movement and populism, increasing terrorism attacks and the growing concern over the global bond and equities markets. This has led many to seek investment in the European property market. Still, where should one invest in Europe and why should they invest? Egypt Today answers the most important questions you may have when taking the decision to invest in Eurozone property.
2017 Reviewed
2017 was a year of mixed results. Published housing statistics so far (from the start of the year to Q3) show a rise in property prices, with 38 countries on the rise and eight countries facing a decline. However, these are just the upbeat nominal figures. When the statistics are adjusted to account for inflation figures, the number of countries who saw a rise in their housing market docks to 24 out of 46, according to Global Property Guide.
Despite the momentum slowing in most of Europe’s markets in Q3, 15 out of the 24 real estate markets have seen a rise during 2017, according to Global Property Guide. Iceland, Romania, Ireland, Sweden and the Netherlands came out on top.
Iceland’s house prices surged because of rising influx of tourists and limited houses to 18.76 percent year-on-year (y-o-y) in Q3 2017, up from the previous year’s 10.85 percent. Romania performed second, as per Global Property Guide’s Global Survey, with the average selling price rising by 9.36 percent during Q1 to Q3, up from last year’s 9.02 percent. Ireland, which some analysts say is competing to take Britain’s spot as the number one go-to business hub, has also seen a strong rise in property prices. Prices went up by 7.62 percent, an increase from the previous year’s 6.41 percent.
Sweden is now slowing down – and does not show the best prospects for 2018 and 2019 – due to the new amortization requirements introduced in June 2016 with the aim of curbing speculative demand. Nationwide house prices rose by 5.87 percent, a decline from y-o-y to Q3 2016’s 7.41 percent, but a rise from the previous quarter’s rate. House prices saw a quarter-on-quarter (q-o-q) increase of 1.67 percent during Q3 compared to Q2. The Netherland’s also saw a y-o-y decline but a q-o-q improvement, with purchase prices rising by 5.69 percent, a decline from Q3 2016’s 7.09 percent, but a 2.17 percent increase from Q2.
Spain, Switzerland, Austria’s Vienna, Norway, Finland and Estonia’s Tallinn also saw a y-o-y in Q3 2017 increase in house prices, although to a lesser extent. Montenegro, the Slovack Republic, Germany, Portugal and Latvia’s Riga also saw a q-o-q rise in housing prices, with Montenegro and Portugal witnessing the biggest y-o-y price increase, suggesting a move from Tier two countries to Tier one, as forecast by PWC and the Urban Land Institute (ULI) in ‘Emerging Trends in Real Estate Europe 2017.’
This move, according to the two research giants comes as a result of investors looking at different factors to what they had traditionally been assessing, a claim they support via the responses they received in their yearly survey. Among the most important factors are: physical and social infrastructure, importance of quality of life, social diversity, forward-thinking municipal authorities, sustainable development trajectories and demographic changes.
These factors led to the continued depression of some of the markets, most notably Ukraine, Russia and Macedonia. Ukraine’s Kiev saw a decline in house prices by 6.89 percent during the year to Q3 2017, worse than 2016’s 2.93 percent decline. Russia’s property houses decline by 6.69 percent nationwide. Meanwhile, Macedonia’s political crisis and economic instability due to neighbouring Greece led to a fall of 2.78 percent, an improvement to Q2.
Crossing Borders: Why one should invest in Europe?
Despite an undercurrent of political uncertainty, the international economic landscape’s benign status have led many, like the United States’ Commercial Real Estate Services (CBRE) in their ‘Europe Real Estate Market Outlook 2018’ study, to forecast positive momentum for real estate throughout 2018 and 2019. Europe has become more and more attractive especially after property experts globally reached the consensus that the U.S.’s, and to a lesser extent, the UK’s, real estate sectors have been undermined by risks and concerns that have left investors alienated and wary.
A Dubai-based property investment expert told Egypt Today that there is increasing pressure worldwide to deploy capital in Europe due to the increasing return that the continent is offering. Moreover, the expert added, properties in Europe, generally speaking, appreciate well. Thus, property investment is a lot safer than many other kinds of investment.
Moreover, CBRE research finds that there is an increasing demand for niche and specialists assets. This comes in light of the recent political changes in Europe, for example, Brexit, that has led many companies to relocate, increasing the value of property in some places, while decreasing its value in others. Depending on whether the investment one is looking to make is short-term or long-term, one should pick which country they want to invest in.
Furthermore, CBRE research suggests that most European markets are at full capacity, this means that those who purchase now would have the good fortune of having their property appreciate in a market where little movement occurs in the face of an increasing population.
BNP Paribas Real Estate Research suggests that 2018 will see the cycle in Europe reach a point of inflexion. Cities all over Europe are at different stages, even cities in the same country seem to be at different places in cycle, meaning the different strategies of investment would need to be employed. Initially though in Europe, generally, a compression period is expected, however, stable incomes are likely to ensure that all markets bounce back quickly with a positive outcome. Thus, unlike different risks and difficulties in Europe, which may be similar to some of the risks faces in different countries in other continents, one should invest in Europe as its risks are known and it is expected to bounce back.
Furthermore, the European Central Bank is expected to keep interest rates capped at their current record low until 2019, meaning that the margin for property yields will continue to be attractive until the end of 2019, and will then improve further. As Jeffery Kleintop, chief global investment strategist for Charles Schwab puts it, “Europe offers you diversification.” For Schwab, diversifying your assets via purchasing property in Europe is relatively safe. Thus, for those wanting to invest abroad, it is certainly a good time to invest in Europe.
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