House prices in Europe will rise the most in The Netherlands, Germany and Sweden this year, despite the Covid-19 lockdowns and a sharp drop in economic activity, while Ireland, Spain and Portugal could see small declines, according to global ratings agency S&P.
Residential property prices in The Netherlands are expected to rise 6.1 per cent in 2020, while Germany and Sweden will see increases of 4.6 per cent and 3 per cent respectively, S&P economists said in a report published on Tuesday. Prices are also expected to rise in Belgium, France, Italy, Switzerland and the UK, even as a second wave of coronavirus threatens economies across the continent once again.
Accumulated pent-up demand for homes, the need for space, resilient household creditworthiness, and low financing costs have all contributed to a ... dynamic property market in the latter part of the year.
"Accumulated pent-up demand for homes, the need for home space, resilient household creditworthiness, and low financing costs have all contributed to a fast recovery of transactions and a dynamic property market in the latter part of the year," said Marion Amiot at S&P.
Despite three months of lockdowns to contain the Covid-19 pandemic and a sharp economic contraction in the second quarter of 15 per cent in the eurozone and 22 per cent in the UK year-on-year, housing prices in Europe have remained resilient, said S&P.
Housing supply was squeezed during the movement restrictions, as construction activity dropped by 32 per cent year-on-year in the eurozone in the second quarter and by 36 per cent in the UK. Construction in Germany was the exception in Europe, where activity remained stable over the second quarter because it was allowed to operate almost normally.
However, spending more time at home and having to work remotely saw many households reassess their need for space, with those that could afford it then choosing to upgrade.
"In this context, we expect price increases to soften only a little this year, while we foresee a more pronounced slowdown next year as government support through the pandemic is phased out and labour market developments become less supportive of household income," said Ms Amiot.
The global economy is set to contract 4.4 per cent this year as a result of the pandemic, according to the International Monetary Fund, with the crisis costing as much as $28 trillion in output losses over the coming five years.
However, employment in the euro area decreased to 66.2 per cent in the second quarter, with the highest decreases of 3 per cent found in Estonia, Ireland and Spain, according to the Organisation for Economic Co-operation.
The continued climb in house prices is partly linked to the nature of the crisis and the government support put in place to preserve jobs and businesses, S&P said.
With the housing market largely unable to operate during lockdowns, it led to pent-up demand as soon as it reopened. Meanwhile, household incomes have been preserved thanks to short-time work, furlough schemes, and government credit guarantees for firms that have contained the rise in bankruptcies.
As a result, households have never saved so much as during the lockdowns, putting aside 25 per cent of their income aside in the eurozone on average and 28 per cent in the UK in the second quarter of this year. This allowed would-be property buyers to put down bigger deposits on their house purchase.
In addition, financing costs are close to all-time lows with the European Central Bank's looser monetary policy measures allowing households to access cheap financing during the crisis. New housing loans, unlike new consumer loans, increased during the lockdowns by $30 billion in the eurozone between March and May.
“Even though banks have tightened credit standards since the onset of the crisis, most households in the eurozone are less indebted than during the financial crisis. Favourable financing, combined with government job support measures and high savings, suggest that home buyers' creditworthiness is much better than following the financial crisis,” S&P said.
Looking ahead, the ratings agency expects housing demand to soften next year and with it house price increases.
“The presently supportive factors, such as high savings and low financing costs, suggest large price corrections are unlikely. But labour market developments are set to become less supportive of household income,” it said.
The return to pre-pandemic levels of activity in 2022, and potential structural changes in housing demand post-Covid-19, should lead to a renewed acceleration in housing demand and prices, S&P said.
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A foster couple or family must:
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- not be younger than 25 years old
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- A single, divorced or widowed Muslim Emirati female, residing in the UAE may apply to foster a child if she is at least 30 years old and able to support the child financially
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Funk Wav Bounces Vol.1
Calvin Harris
Columbia
