Don’t buy that villa just yet

Now may not be the best time to in­vest in global prop­erty, even if sun­nier climes tempt


There are many good rea­sons to buy prop­erty over­seas. For fre­quent trav­ellers, or those who live and work in more than one lo­ca­tion, it can be about con­ve­nience. For those who per­haps plan to re­tire to a well-loved hol­i­day des­ti­na­tion, it can be about for­ward plan­ning and a dash of ro­mance. But what about the in­vest­ment out­look? Is now a good time to buy res­i­den­tial prop­erty abroad, purely as an in­vest­ment?

The short an­swer is prob­a­bly not. While ev­ery mar­ket is unique, and I am mak­ing gen­er­al­i­sa­tions, a lot of the tail­winds that have helped to drive prime prop­erty prices higher in re­cent years are turn­ing into head­winds.

There’s no doubt that prop­erty in prime lo­ca­tions has been a good in­vest­ment since the days of the fi­nan­cial cri­sis. As Yolande Barnes of up­mar­ket es­tate agency Sav­ills points out, prices in most global cities have soared since 2012. Prices in Shang­hai have more than dou­bled. San Francisco, Dublin, Am­s­ter­dam, Van­cou­ver and Syd­ney are among sev­eral cities to have seen prices rise by more than 60 per cent in that same pe­riod. That has left many res­i­den­tial mar­kets looking ex­pen­sive, cer­tainly by his­tor­i­cal stan­dards, and on mea­sures such as lo­cal in­come to price multiples.

What’s been driv­ing this? The most ob­vi­ous fac­tor is mone­tary pol­icy. Af­ter Lehman Brothers col­lapsed in Septem­ber 2008, cen­tral banks around the world slashed in­ter­est rates and printed money, us­ing quan­ti­ta­tive eas­ing (QE). Those who were able to bor­row money could get it very cheaply. As a re­sult of this loose mone­tary pol­icy, as­set prices world­wide – par­tic­u­larly any­thing as­so­ci­ated with a re­li­able in­come, such as prop­erty – shot up.


This loose mone­tary pol­icy is now re­vers­ing. Cen­tral banks have ei­ther ended QE or are talk­ing about do­ing so, while in­ter­est rates – most no­tably in the US – are on the way up. As debt grows more ex­pen­sive, so the yield re­quired from an in­come-pro­duc­ing as­set needs to rise. That means ei­ther ris­ing rents (which seems un­likely, given low wage in­fla­tion) or fall­ing prices; or a bit of both.

It’s not just about tighter mone­tary pol­icy, how­ever. It’s also about pol­i­tics. Another big tail­wind pre-fi­nan­cial cri­sis was the em­brace of glob­al­i­sa­tion, and the idea that money, goods and peo­ple should be able to flow freely across the world with­out re­stric­tion. That’s chang­ing, slowly but surely.

For many of the world’s ul­tra-wealthy, prop­erty in prime lo­ca­tions in global cities be­came a safe haven af­ter the fi­nan­cial cri­sis. You couldn’t trust the banks. You didn’t know which com­pa­nies were go­ing to sur­vive. Even highly in­debted govern­ments might be in trou­ble. So bricks and mor­tar in de­sir­able global bolt­holes seemed a good bet.

But prop­erty is be­com­ing less at­trac­tive to the elite. There’s a per­cep­tion (largely jus­ti­fied) that poli­cies adopted to save the fi­nan­cial sys­tem – while per­haps nec­es­sary, at least at first – favoured the wealthy, by driv­ing up as­set prices. That per­cep­tion has helped to fuel voter anger, giv­ing rise to a new, global era of pop­ulism.

As a re­sult, there has been a sig­nif­i­cant back­lash in even os­ten­si­bly pro-glob­al­i­sa­tion coun­tries. Lo­cals have been priced out of their own cities. So govern­ments across the globe – from Van­cou­ver to Lon­don to Shang­hai – have in­tro­duced tighter re­stric­tions and higher taxes on pur­chases by for­eign­ers. New Zealand – pos­si­bly sick of be­ing the sub­ject of bil­lion­aires’ zom­bie apoca­lypse fan­tasies – is looking at ban­ning sales of prop­erty to “for­eign spec­u­la­tors”. This sort of move is un­likely to make houses any more af­ford­able for lo­cals in Lon­don’s Zone 2, say, but it does as­suage some of the voter anger.

More im­por­tantly, politi­cians – keen to raise funds to plug the gap­ing holes in balance sheets – are in­creas­ingly talk­ing about wealth taxes. Few forms of wealth are as easy to tax as prop­erty. You can hide your global in­come; you can stash your art in a vault in Zurich; you can carry gold coins and di­a­monds with you. But your prop­erty is stuck where it is, highly vis­i­ble. That makes it a prime tar­get for cash­strapped politi­cians.

In short, debt is get­ting more ex­pen­sive, and govern­ments and vot­ers are in­creas­ingly hos­tile to­wards the foot­loose elite and the forces of glob­al­i­sa­tion. That’s not a promis­ing back­drop for res­i­den­tial prop­erty as an in­vest­ment. In­deed, prime prop­erty in Lon­don has been fall­ing in value for a cou­ple of years now. I’m not say­ing you shouldn’t buy that pied à terre you’ve had your heart set on; but I am sug­gest­ing that if you’re looking at prop­erty purely as an in­vest­ment, it might well be bet­ter to wait un­til this par­tic­u­lar cy­cle has reached its nadir.

Govern­ments and vot­ers are in­creas­ingly hos­tile to the foot­loose elite and the forces of glob­al­i­sa­tion

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