T he improving spirits of British house builders and estate agents are mirrored across much of the world this autumn – but it may not be down to market forces.
Figures for new home ?starts, transactions and house values suggest most countries in Europe and north America hit by the residential downturn of 2008-2013 are now picking up. Meanwhile, many Asian housing ?markets not directly affected by the ?Western economies’ recessionary ?period are successfully resisting the opposite pressure of price bubbles.
Yet how much of the recovery is genuine and how much down to state intervention?
The most spectacular recovery is in?the US, where figures show impressive growth. In Oakland, California, prices rose 41.3% in the year to August 2013, while in Michigan, Detroit, values rose 37.8% – although they have not saved ?the city from bankruptcy. Across the ?US, prices have rebounded 7%-12%, transactions are up 15% and new family home starts are up a startling 24%.
Yet ironically, in the capitalist world’s capital, much of the demand comes ?only as a result of a $187bn (£116bn) US federal government bail-out. This means that just over 90% of home loans issued in recent years through the Fannie Mae ?and Freddie Mac institutions – bailed ?out back in 2008 – are subject to taxpayer guarantees, not unlike those to be introduced in January 2014 in the UK under the second phase of Help To Buy.
The problem is that while President Obama, Congress and the Senate all seek to remove the government safety net, no alternative private source has been found. “I don’t think there’s enough private capital out there today. Investors are still a little leery. It’s only been a few years since the economic crisis,” says Ron Shapiro of the Center for Real Estate Studies at Rutgers University in New Jersey, which has studied the state’s ?role in the housing market.
Many other countries are also using ?de facto subsidies or sweeteners in different ways. In Knight Frank’s global price index of 55 countries, over half ?are showing signs of new or continued recovery, and the index now stands ?27% above its low point of mid-2009.
“The top-performing markets are ?still recording double-digit annual price growth, but the weakest markets are ?no longer falling at the rate they were earlier this year. The range between the top and bottom ranking has shrunk from 56 percentage points last quarter to only 39 points,” says the firm’s international research analyst Kate Everett-Allen.
But government intervention is key ?in Europe. Ireland, for example, has introduced a seven-year relief on capital gains tax for homes purchased before the end of 2013; stamp duty for homes over €1m has been slashed from 9% to 1%.
And many European countries reliant on overseas buyers for some of their housing market strength – accounting for 10% of purchases in some nations – have this year introduced incentives with the target being affluent Asian buyers.
Greece says non-EU foreign nationals buying homes over €250,000 may obtain five-year renewable residence permits. Cyprus has done the same for non-EU nationals buying homes over €300,000, subject to evidence of their income and ?a minimum €30,000 deposit in a Cypriot bank. And Portugal is offering tax and residency perks to some non-EU investors buying at above €500,000.
Even in countries where national housing markets are strong, there ?are significant fiscal and legislative frameworks being introduced to prevent bubbles. This is especially so in sectors where international interest is high; for many Asian countries, foreign buyers form 10%-30 % of the entire transaction total, so this is not a negligible factor.
China forbids non-resident foreigners from buying on the mainland, while ?India prevents the purchase of property by all non-Indian nationals. Singapore and Hong Kong impose additional stamp duty of 10% and 15% respectively on foreign buyers. Indonesia effectively ?bans all foreign residential ownership, while Thailand restricts foreign buyers?to leasehold properties with leases ?of 20 years or less.
So while most individual markets ?are now either strong or recovering, ?almost no country dares to rely on pure, ?free-market solutions. The international residential sector may well be emerging from the crisis, but “normality” is now very different to how it was in 2008.
MORE PAIN IN SPAIN
While much of the world’s residential sectors are recovering, Spain is ?the exception.
There are few housing statistics regarded as robust in Spain, but the latest data from the Council of Notaries shows transaction volumes in the year to July 2013 were down 26.9%, with prices slumping another 13.3% in ?the same period.
Sale prices are 37% below their 2008 highs, says respected website Tinsa, but the Idealista portal – which analyses asking, offer and sale prices – says buyers still demand more and that offers are now 23.9% below asking prices. By contrast, the UK’s residential downturn did not see its asking/sale price gap fall below 10%.
Over-supply is the major cause of price free-falls. Some 259,000 homes were sold privately in 2012 with another 59,000 purchased by banks. There are now 1.56m homes are on the market, and this will take five years to mop up, claims property data firm RR de Acuna & Associates.
While there is a rise in foreign buyers of cut-price holiday accommodation, this has had little impact on the market. With unemployment at a national average of 26% and wages falling, Spanish property consultancy Aguirre Newman warns that housing values have to fall another 20%-25% before hitting affordability levels.
