Secondary cities withstand shaky politics

It has been one hell of a year. So what could 2017 hold for global property? Paul Avery, global research analyst at Property Frontiers makes some predictions

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 political establishment will pin their hopes 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 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 curtail mortgage lending, though political change could be positive.

The victory of the liberal over the far-right candidate in Austria’s presidential election 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 that 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).

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 many bankers transfer from London to Amsterdam, startups relocate from Manchester to Hamburg, or shipping lines reroute from Liverpool to Bordeaux?

Although 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, as well as rivals such as 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-spiky 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 

The US rocketed past the UK as the stage for the biggest political upset of 2016 with the election of Donald Trump. But 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 growth numbers 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.

Further afield 

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 the economies and currencies. Property markets in such places 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 oil. 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 ascent 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 encouraging moves to attract foreign investors, and boast the economic growth to back it up. The year 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 deploy 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 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.

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