In the second of our series of property predictions for 2019, we look at Europe, the Middle East and Africa.
The picture in the UK has been dominated by Brexit, and most of our coverage this year reflects that. When (or perhaps “if”) Brexit happens on March 29, my feeling is the market will not do a great deal. In London, Brexit has been pricing itself in since 2016 and – supposing we don’t go crashing out with ”no deal” – we may see a small Brexit bounce, as those prospective buyers who have been waiting to see commit to a purchase.
But here is what the experts think:
Guy Bradshaw, head of residential at Sotheby’s International Realty UK:
The biggest driver for London’s prime property market in 2019 will undeniably be foreign investment by individuals looking to hedge their bets with the good currency play. We are already speaking to a handful of American investors, following the Bank of England’s (BoE) stress test.
With the exchange rate potentially offering US buyers an effective 25 per cent discount on properties, this could be one of the smartest times to invest in London. These buyers are predominantly from Miami and New York, and are unfazed by the proposed foreign buyer tax as they know they will recover these costs when the market bounces back.
The UK market is looking like a good deal in 2019 to foreign buyers. These clients remember purchasing here after the Lehman Brothers crash and have reaped the rewards of the market recovering in more recent years. Crucially, the BoE’s report states that by the end of 2023 the economy is expected to resume growing, so buyers now could be making a very savvy investment indeed if they are willing to hold on to their asset for a number of years.
Hugo Thistlethwayte, head of international residential, Savills:
Across Europe, buyer activity remains strong. Germany continues to attract international investment, particularly in Berlin and Frankfurt, with new developments leading the way. This is also the case in Rome, which is starting to hit the radar with international buyers due to new development schemes coming to fruition — newly built residential stock has not been seen in the city in the past decade.
Spain is continuing its recovery, especially in Madrid and Barcelona; transaction levels in the latter are back to pre-independence referendum levels. Investors are now looking for value and I would tip Valencia as an alternative city to watch.
Looking to the Middle East, Dubai is still the main destination for international investment. Discussions of oversupply will remain into 2019. Residential projects will continue to be delivered, adding to deteriorating demand and softening prices. The property market at large will look for more government policy and growth initiatives, development regulatory control and central bank lending policy, to try and reignite demand drivers and curtail unfeasible projects.
The year ahead will bring further supply to the market for Abu Dhabi as key projects will be released to the market both for sales and leasing. Al Raha Beach and Al Reem Island will continue to lead this trend, offering tenants multiple options.
In Egypt, there is a huge amount of supply due to come to the market in 2019, but prices are likely to remain stable due to strong demand from a rapidly growing population and the fact that most purchases are in cash. Other factors likely to support the current prices are high inflation and rapid increases in petrol prices, leading to the rising cost of construction materials.
The current oversupply is also likely to prevent the major developers from launching new projects, which will further support the current prices. Two areas expected to see plenty of activity over the next couple of years include the New Capital, to the east of Cairo, and the area surrounding the new Grand Egyptian Museum in Giza.
Liam Bailey, partner and global head of research, Knight Frank:
The eurozone has been a sweet spot in our prime global forecast for the last three years. Paris, Madrid and Berlin together lead our prime forecast for 2019 with 6 per cent growth forecast. We expect these cities, driven by buoyant economies, expanding investment sectors and low interest rates, to see domestic and international demand strengthen in 2019.
The consensus view is that the European Central Bank, having confirmed it will end its asset-buying programme at the end of 2018, will start to raise interest rates in the third quarter of 2019. This will be the first rate rise for nine years across the eurozone and will mark the end of exceptionally cheap finance.
Based on buying trends witnessed this year, we expect Berlin and Paris to see more inquiries from Middle Eastern purchasers, while Madrid may see Venezuelans joined by Argentines. French activity may wane after a high volume of transactions in Portugal and Spain in the past two years.
Unlike other prime markets globally, the eurozone has yet to see foreign buyer taxes or rigorous transparency measures imposed. Instead policymakers have focused on the holiday rental market, and it is likely we will see platforms such as Airbnb face further restrictions in the region’s prime holiday destinations in 2019.
In Dubai, the easing of business and visa regulations, alongside the removal of the banking sector’s 20 per cent real estate exposure ratio, is likely to underpin the market in 2019 when the majority of these initiatives will go live.
Prices will soften in those neighbourhoods set to see a large volume of new product delivered. In contrast, we expect prime prices in Palm Jumeirah, Downtown Dubai and The Lakes to dip by only 2.4 per cent in 2019.
Sarah Vaulkhard, adviser on the overseas desk at Property Vision:
My advice for buying UK real estate in 2018 was to buy best-in-class assets and, in an increasingly uncertain world, this continues to be a sensible approach.
The headlines paint a bleak picture of a weak UK property market, and certainly, at a high level, London prime property values have come down since their 2014 highs. However, this certainly does not tell the whole story.
As I advised in my 2018 predictions, good lateral apartments in well-managed buildings on the best streets are a sensible buy and have seen very little adjustment, whereas dark basement apartments on busy roads may have come down 30 per cent. So although a 15-20 per cent fall is frequently quoted, it gives a over-generalised perspective on a market that is very fragmented and multi-faceted.
Rising political and economic uncertainty is feeding weaker sentiment across financial assets, including real estate. If there is anything positive to be taken from this, it has helped to cap transaction levels, which has reduced the hit on values.
Nonetheless, in this challenging environment, we are seeing some good opportunities for those buyers looking to step into the market now. For example, our London team has seen more bank repossessions in the past 12 months than in the previous 12 years. Why? Mainly because homeowners have maximised their loans and the valuations no longer stand up.
The appetite from overseas buyers for new-build investment properties continues to fall and if UK prime minister Theresa May’s hint at introducing an additional stamp duty for non-UK taxpayers comes into fruition, numbers could fall further.
However, to counter that, currency will continue to play a significant role. As I predicted, the pound did bounce back at the beginning of 2018, but this was short-lived and it continues to fall, which will facilitate discounts for foreign buyers. Many of the factors that make the UK an attractive place to invest (and live) continue to be true, namely having a world-class education system, the appeal of English common law and the English language.
Henry Pryor, high-end buying agent:
Abu Dhabi’s market has cooled as buyers bide their time. With some exceptions, this is the case in much of the overdeveloped luxury market in the Middle East.
In Africa, there are signs of a new dawn, with real estate proving popular in South Africa and regaining its allure even in markets such as Zimbabwe, where speculators are starting to take positions.
Europe remains attractive to a global audience — the mix of sophistication, economic stability, relative personal safety and culture continue to draw buyers even while the UK appears to be turning its back on the rest of the world.
Europe is cleaning up its act and has hung out the “not welcome” sign for criminals and money launderers and, while there is still a lot to do, there is some optimism that this will continue. Investors looking for steady, reliable yields remain keen on Europe, but the speculators have headed elsewhere.
Top photograph: Getty Images/iStockphoto