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27.12.2011 Global Property Market 2011

European property market is the weakest performing world region

Lack of stability in global economy and Eurozone crisis have started to affect the global property market.

In Q3 2011 which saw a peak of debt crisis in Eurozone followed by worries about double dip recession, economic uncertainty caused a decrease in global property market growth which stands now only at 1.5%.

Traditional price gap between East and West, started to develop already in 2008, is gradually narrowing due to the deflationary measures undertaken in Asia.

Annual price growth in Asia fell down from 15,2% in Q1 to 6,9% in Q3 2011.

Interestingly enough the luxury property market has appeared to be well insulated from the weak phase of mainstream market sector largely due to the scale of global wealth, continuous search of safe investments and widening gap between Western premium class segment and other countries.

Hong Kong has turned out to be the most lucrative property market in 2011 with prices increasing by 19% during last 12 months.

The biggest price decrease was registered in Ireland with prices falling by 14% during last 12 months.

Overall the European property market is the most troublesome region.

In what ways has the debt crisis in Europe affected the real estate market of different European countries? To answer this question Night Sky Realty specialists have elaborated a brief report on key European property markets in 2011.

France According to some experts France will face 8% house price decrease in 2012.

In 2011 France saw a price growth in Paris, Provence and South of France, though some other regions performed not so well.

Nowadays France is surrounded by the Eurozone crisis and property market will most likely to suffer from negative trends.

According to some experts the amount of deals was minimal during last 40 years and in 2011 was almost 50% less than in 2007.

One of the new trends for French property market in 2011 was an increase in the share of foreign buyers.

French real estate operators saw more enquiries from citizens of Germany, UK, Netherlands and some other countries.

More deals were made by citizens of Great Britain residing abroad and preferring to move to France rather than travel back home.

United Kingdom House market in the UK showed a great deal of resiliency to negative trends during last months of 2011 despite slow economic recovery and worsening forecasts for both the global and UK economy – think Halifax analysts.

Demand and supply reached a balanced state from the end of 2010 which allowed to maintain prices and sales at a stable level.

As a result, the level of house prices on average is equal to the price level at the end of 2010 with the following regional differences: England: down 0.2% Wales: down 0.5% Scotland: down 1.5% Northern Ireland: down 12.1% Most experts give positive outlooks for 2012 and expect a house market to remain stable which would also be supported by law mortgage interest rates.

Nevertheless the possible scenarios for UK economy are viewed controversially and largely depend on the overall situation in Eurozone.

Therefore many specialists believe the prospect of country’s economy and property market is now rather uncertain.

Spain Today Spain is facing economic dilemma.

When Spain joined Eurozone interest rates have decreased significantly.

While Spanish government managed to resist cheap loans most Spaniards failed to do so.

The country enjoyed a continuous economy boom which formed a bubble on the property market thanks to the growing number of mortgages.

Prices for residential property grew by 44% from the end of 2004 till 2008.

After the bubble burst the prices fell by 17%.

During last 12 months by September 2011 the house prices in Spain on average fell by 7,4% with sharpest fall of 8,9% in large cities followed by Mediterranean coast where foreign owners have their property.

Compared to their peak the prices fell by 24,1%.

However not all segments suffer from negative trends.

Luxury property market remained almost intact by economic recession - state local consulting companies.

Elite properties on the coast line with sea view still continue to enjoy great interests from investors.

USA Residential property market in US is most likely nearing its bottom for despite economic difficulties the house prices remained almost unchanged from Q2 to Q3 in 2011.

In Q3 the house prices fell down just 0,2% compared to Q2 and are 4.4% lower year on year and 28,8% lower compared to their peak in 2006.

Decrease in mortgage foreclosure coupled with relatively stable house prices led to increase in negative equity which in Q3 2011 amounted to 28,6% compared to 26,8% in Q2.

Property owner has a negative equity when the mortgage payment exceeds the market value of the property.

After summer 2011 which saw a peak of sales, market activity slowed down and supply is now prevailing over demand.

Potential buyers are kept on the sidelines despite unseen availability of residential property and record low mortgage rates.

Currently, American market is dominated by the crisis of confidence which coupled with negative equity is a strong factor pulling back the market recovery.

Nevertheless, many experts optimistically asses unemployment measures and suppose they might fuel potential buyers’ appetite for new purchases.

Italy Italian economy is valued as the weakest economy in Europe in post-crisis period.

Italy occupies 5th place with regard to the government debt which is 120% of GDP.

Such figures have lowered the investors’ activity and caused a stock market collapse.

Italian bankruptcy presents European Union with a serious problem for Italian economy is 4 times larger than economy of Greece and Ireland altogether.

At the same time the debt crisis in Italy differs from that in Greece for the biggest part of the debt is owned by Italians themselves which allow more flexibility.

Obviously economic problems in Italy have made their effect on the local property market.

Italy has always been an attractive target for foreign investments since it has rich cultural and historical heritage, nice climate and nature.

Italy occupies 8th place by the life quality and 23rd place among other developed countries.

However due to the economic problems residential property market is seized by indecision which is pulling back investors from risky steps.

One of the weakest features of Italian house market is a shortage of high quality property supply – about one third of residential stock requires significant modernization and greater expenditures on reconstruction of existing buildings.

Italian property market is also characterized by rather small number of mortgages compared to other European countries.

Outstanding mortgage loans amounted to 22% of the GDP in 2010 which is 7% higher than in 1997 and drastically less than European average figure of 50% of the GDP.

Italian home buyers rarely apply to credit facilities despite tax benefits.

Most property purchases are financed by personal savings.

Italian property house market reached its peak in 2008 when the prices rose by 70% from 1998.

During the crisis prices did not fall that sharply – in 2009 – by 1,2% and in 2010 by 1,5%.

According to some data in 2011 prices fell by 0,7% in 13 large cities and the amount of sales decreased by 6,6% during 2011.

Many experts contribute this decrease to the consequences of economic uncertainty.

Germany Residential property market in Germany overall saw a sales growth in 2011 in such cities as Berlin, Munich and Hamburg, which occupy first 3 places in the investment rating.

Total proceeds from residential property sales amounted to 10,37bn Euro which is 22% higher than last year.

Uncertainty on the stock markets shifted the investors’ focus to the property markets thus increasing the investments flow of both private and institutional investors.

46% of sales were made in Berlin, Munich and Hamburg while in other regions the prices differ significantly.

Smaller cities such as Dortmund or Essen have lower and less volatile prices.

Being a confident Eurozone member, Germany is experiencing a significant growth of investors’ activity on the property market.

Specialists explain this situation by the fact that many European countries find themselves in the indecision economy phase which makes investors look for more stable markets such as Germany.

The consumer debt is relatively small in Germany and cautious banks are unlikely to be drawn to the debt crisis together with their European counterparts which creates a long term confidence for investors.