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Why are we seeing a property boom when the world is engulfed in a global pandemic? This is a very valid question, considering that, during the financial crisis in 2008, real house prices fell by an average of 10%, wiping trillions of dollars off the value of bricks and mortar.
With the Covid pandemic in full swing, the naysayers hunkered down, expecting the worst. But instead of a crash, the opposite has happened, with most middle- and high-income countries enjoying an average 5% increase in house prices.
Most borders are shut, or freedom of movement is curtailed due to quarantine restrictions, which means that property speculators are having a hard time viewing homes in the countries where they’d like to invest.
So, if the growth isn’t coming from international interest, what is fuelling the property boom? Is this even an ideal time to be looking around if you want to buy a property abroad?
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Enjoying a boom
Some countries are enjoying a property boom fuelled, in particular, by favourable government legislation (such as the UK’s stamp duty holiday), pent-up demand, low interest rates, and people’s desire to move to bigger properties out of town in the wake of the pandemic.
According to Knight Frank’s Global House Price Index, global residential prices are rising at their fastest rate in nearly three years. House prices rose by 5.6% on average in 2020, up from 5.3% in 2019.
The index revealed that some 89% of countries and territories saw prices increase last year. Countries currently enjoying a boom include Turkey, which saw the highest rate of annual price growth. Prices there rose by an impressive 30.3% from Q4 in 2019 to Q4 in 2020.
Others that saw double-digit price growth include New Zealand (19%), Russia (14%) and the USA (10%). Canada and the UK (both 9%) almost made the list.
Knight Frank says: ‘With travel bans in place, demand is coming from domestic buyers who have reassessed their lifestyles since the pandemic hit, many now seeking home offices and outdoor space.’
Suffering a slump
Not all countries have seen house price rises. While some European nations enjoyed a boom, many southern European countries saw prices fall – or rise only a little – in comparison to their well-off neighbours. House prices in Spain slumped by 1.8%, and Italy experienced an unimpressive 1% increase in prices.
Knight Frank said that strict lockdowns, rising unemployment and surplus supply were to blame for the low growth in southern European countries. But it’s not only Europe that saw prices drop. Hong Kong SAR, Malaysia and India all saw prices slump by 0.1%, 0.8% and 3.6% respectively.
Property crash in 2026?
So, should you get in on the game while prices are on the rise, especially in countries where the vaccine rollouts are conducted successfully? Well, that really depends on how long you intend to invest in property.
The honeymoon period of escalating prices will end in five years’ time, predicts British author and economic commentator Fred Harrison. In his latest book, We are Rent, Harrison says property prices will next peak in 2026 but that this will be followed by a recession that will be worse than the events of 2008.
Before you point out that he could be wrong, remember that Harrison successfully predicted the previous two property crashes before they occurred. His theory is based on 18-year boom and bust cycles that he has mapped out from analysing data over hundreds of years.
Markets can crash for any number of reasons, but Harrison believes that the crash in 2026 will more likely be caused by unsustainable pricing. This effectively means that prices will be too high for average people’s incomes. They are currently at that price point, particularly in the UK, but Harrison believes the crash is still some years away.
The easing of travel bans will inevitably see a recovery in cross-border transactions, which could again boost property prices further and make most property speculators bullish about investing abroad.
But any purchases made now must surely be weighed up against the potential for a property price crash – the likes of which we’ve not seen in a while. Unless there’s some government intervention that prevents the crash, it’s likely to happen, and even create a ripple effect globally. The question you have to ask yourself is whether you could sustain a fall in prices and ride it all out. If not, it’s best to be cautious.
