With the Chinese markets in turmoil and the world capital markets in freefall Trevor Abrahmsohn of Glentree considers if the UK Property market will be affected?
After years of unrelenting growth, the long awaited correction in the Chinese Shanghai Composite Index has taken place with its predictable effect on the rest of the world. How surprised should we be, as it has risen by 150% in one year and has now lost 43% of its value since June?
China, for their own judicious reasons, has been overstating its meteoric growth for the past ten years and, as we all know, the climb to be the ‘largest economy on earth’, is beset with obstacles.
What affect does this have on the UK property market?
Our own FTSE Index, which has risen reasonably consistently for the past two years, has been predictably affected. This will undoubtedly postpone Mark Carney’s thoughts on raising interest rates that he has been pontificating upon recently. As we all know, his recent forecasting of an interest rate rise, based on the historic unemployment figures, has been unreliable and intelligent analysts even thought his recent musings, in this regard, were premature and will be even more so in the light of these newly changed circumstances.
With commodity prices, the value of the Renminbi falling (rendering our imports cheaper) and the price of oil remaining low will have, in combination, a depressing effect on inflation, aided and abetted by falling food prices. Zero inflation, or possibly deflation, may be with us for a while and I am sure that The Chancellor has thought more than once or twice about going back to a form of quantitative easing to reflate the economy.
In terms of UK property, the few Chinese investors who did exist will be lessened and low interest mortgage rates will be the order of the day. Amongst this mayhem, we should remind ourselves that the UK economy is still doing surprisingly well, in world terms, with growth of about 2% and unemployment dropping as we speak.
With the Capital Markets being so uncertain, Bond yields low and interest on cash deposits at an all time low, there are very few alternatives other than UK residential property for spare investment cash.
The new draconian Stamp Duty rates may be a high threshold to overcome for residential property buyers, particularly at the higher end of the range, but the ‘have-to-buys’ are still out there buying although we may have lost a good deal of the ‘like-to-buys’. Having said this there is still probably no better place to invest your money than UK residential property today.
Despite the Tax changes in the recent budget regarding buy-to-let investments they are still good quasi alternatives to Private Pensions which have lost their luster over the years by successive changes to fiscal legislation. So, if you are in stable employment and you can afford to ‘trade up’ by investing more in your home, this surely must be the time to do it.
Since there were Stamp Duty breaks in last year’s Autumn statement the property market up to £ 500,000 is doing very nicely with a good deal of liquidity. But it is doing less well at the middle to higher end. Buyers did not come out in force in this latter price range after the Election this year as we had all expected and the summer lull started in June rather than July or August. As a result, price growth is generally subdued in this sector, however, we could be pleasantly surprised if it is a busier autumn season as a result of pent-up buying intentions and opportunities which exist – time will soon tell.
So, it is fair to conclude that the fall-out from the Chinese Stock market could be less than one would expect and perhaps in terms of interest rates and the inflation rate may well be a positive advantage.