From Covid Chaos to Brexit bluster for homeowners abroad

Just at the time we might be able to travel again and move about a bit more freely at some stage in 2021, then another challenge rears its head for Continental European homeowners.

Brexit-Britain-Europe-Hands

From January 2021 the right to free movement guaranteed under EU rules ends for UK residents, who will only be able to remain within the Schengen-free zone (encapsulating most EU member countries), for a maximum of 3 months, within each six month period, regardless of whether a post-Brexit trade deal is done or not.

And this is irrespective of whether it is for work or leisure, in that country or any other in the same Schengen zone. There is a 180 day allowance over the entire year.

This is a challenge for people who have got used to homeworking and the idea that work can be non-location specific, as has become more ingrained in our psyche. This means some Brits are feeling the draw to move to and work from countries like France, Spain or Portugal, potentially still for UK-based enterprises.

However in spite of this, individual EU countries have some discretion, with some offering longer stays for non-Europeans who invest in property above a minimum threshold level. Or in other assets. This arrangement has been dubbed a Golden Visa.

Currently a work-around is for Britons to change their formal residence from Britain to one of the 27 members. Although from 1.1.2021 this becomes more complicated.

There are other also other considerations, like, taxation. The UK currently has a reasonable taxation system and some Continental European countries have higher personal taxation regimes. Becoming resident of another EU country can mean being taxed in that country on worldwide income and potentially assets too.

Then there are healthcare and pensions to consider. On the upside, a replacement for the EHIC card may yet still come, but in the meantime it’s a question of ensuring travel insurance covers medical needs, which we tend to do anyway. Expats might incur extra charges for Private Pensions being paid into foreign bank accounts (although State Pension payment are free).

What isn’t yet clear – given no agreement has yet been reached on the future relationship between the UK and the EU – is to what extent bi-lateral agreements between countries might be reached. Countries like Spain and Portugal have long-standing relationships with the UK and will want to maintain the status quo. London is France’s ‘second city’ on account of the number of French people living in the city, so has vested interests. What are your thoughts?

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Another Lockdown. Another day in UK and Europe

We are all rightly concerned about Lockdowns and their effect on us and the economy. And it can be unclear whether we are doing the ‘right thing’ or not. We can put things in context if we take a look at our Continental European neighbours.

Understandably people question Lockdowns, yet it isn’t just the UK. France, Italy, Spain and even Germany – which has proved to be efficient in its Test-and-Trace programme, are imposing similar lockdowns and restrictions.

By mid-October 240,000 people lost lives in Europe with an estimated 7m infections, so many countries have felt the need to act.

The European economies, as measured by Real Gross Domestic Product (GDP), fell 40% in 2nd quarter of 2020 and more developed nations have felt the worst effects. 54m workers have been supported by some job retention scheme or another.

Projections are for European economic activity to suffer a 7% GDP decline in 2020 – the biggest since World War II, followed by a rebound of +4.7% in 2021

Economic activity would have been 3-4% lower in 2020 with none of this support according to the International Monetary Fund (IMF) .

European Impact of a 2nd round of the pandemic?

Addressing the concern about the amount of government spending, the (IMF) takes the view that Governments can’t afford not to spend, given it keeps people in jobs and businesses going. It is avoiding ‘Economic scarring’.

And it will be a very long ascent for most countries to get back to pre-2019 economic levels, possibly by 2022-2023. Governments will need to work at shrinking the debt and create stronger financial buffers, in a similar way to how banks addressed the 1997 Credit Crunch. Banks have remained resilient given their levels of capital, which have withstood a liquidity crisis this time around.

EU Countries have access to the European Recovery Fund. On average these funds will supply 3% of GDP and can help enhance growth by 0.75-1.5%. Some countries are suffering more than others.

Spain a big holiday home destination

Spain’s economy is affected more than others owing to the structure of the economy. For example hospitality and tourism are large economic sectors. It also has lots of small and medium sized companies which lack the resources of larger companies, as well as lots of temporary employment contracts.

Portugal a lifestyle choice for home buyers

Portugal too has a large Tourism industry, which is creating a big domestic effect, given all the travel restrictions.

UK – a favourite for expat property investors

The economy is forecast to decline by slightly more than Germany and France.

As for the property market, comparisons have been drawn with the Credit crunch of 2008. During the credit crisis UK property prices declined 19% from a peak in Sept 2007 to a trough in March 2009 (Land Registry). But the UK government stimulus now is far more than the stimulus package in 2008 and it is this which will help determine how quickly and by how much the economy recovers by.

The UK property market is currently buoyed by a flurry of buyers. Both homebuyers seeking to enhance their living space and investors rushing to beat the Stamp Duty holiday deadline of the end of March 2021.

At what stage will property market buying peter out?

We will see this activity slow once the reality of unemployment hits the market. London has already been affected as many migrant workers return home because jobs are hard to come by, leaving a larger than usual supply of rental properties. And as some residents migrate out to the suburbs and Home Counties where they get more living space.

The longer term impact on prices is likely to depend heavily on economic factors; growth, earnings and unemployment. 

The UK has long had a supply: demand imbalance and the building industry has been trying to keep up with the annual supply of houses. That remains the case and is now exacerbated by supply chain issues, slower conveyancing processes and a lack of resources at Local Authority level hampering local searches and causing delays in the buying process.

Expats who are still considering their investment plans given the introduction of the 2% stamp duty land tax surcharge for non-UK residents from April 2021, please get in touch.

Source: * IMF (annualised Quarter vs Quarter)

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My business focuses on helping time-strapped expats and busy business people who don’t have the local presence, or capacity, to acquire the targeted amount of properties for them. Property Venture® is an award-winning, Boutique property consultancy that finds the right investment properties for clients.

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Which European country to emerge strongest from COVID-19?

The World Trade Organisation expects global trade to contract by more than during the financial crisis. And the IMF believes the coronavirus crisis will exact the biggest toll on the global economy since the 1930s Great Depression, with advanced economies contracting by 6.1 per cent and emerging economies by 1 per cent in 2020.

Which country will emerge strongest for property investors?

Globe of European country flags

As Continental Europe makes tentative steps to break its quarantine, with Austria, Spain and Italy loosening some of its rules, France, UK and Germany watch closely to help inform their pathways to normalcy. Brussels is expected to present an EU-wide blueprint for lifting restrictions for a co-ordinated exit.  

France – a favourite for lifestyle investors

Emmanuel Macron is preparing to gradually lift isolation orders in May, which currently stipulate  people can leave their homes only to go to work, buy essential supplies, help the vulnerable, seek treatment or take exercise nearby for an hour a day, alongside a curfew.

For every week in confinement in March, French business activity dropped by about a third, the central bank said. The decline in the French economy is set to be of a similar scale to the second quarter of 1968, when gross domestic product fell 5.3 per cent because of the impact of a student-led protest movement (according to the Central Bank)

The property market in France is highly regulated and prices are – on the whole – more stable than some other European countries. Bigger cities and places which attract international holiday makers have tended to see more buoyant prices in the recent past, like Paris, international ski resorts like Chamonix and holiday home hot spots like the Côte d’Azur. Prices in these sought-after places have further to fall, so if unemployment hits other countries badly, there are likely to be less international buyers and prices could fall.

Italy charms property lovers

Italy’s gross domestic product is expected to fall by 6% this year (Confindustria’s forecast) and public debt reach towards 150% of GDP, with thousands of its 60 million population seeking state-backed income support schemes.

Italy has been pushing – alongside Spain – for a financial support package to support the Southern European countries which have been harder hit than the Northern countries. The current offer of a €500bn economic package involving the region’s European Stability Mechanism bailout fund has caused anxiety in Italy given the suspected stringent repayment conditions that might be levied.

Italy did not win any explicit reference to the concept of “coronabonds” — jointly issued debt underwritten by eurozone member States. 

Property prices in tourist hot spots like the Amalfi coast or Tuscany or its Lakes, might come under pressure.

Germany renowned for stability

Germany’s economy will shrink by almost 10 per cent in the three months to June, according to the country’s top economic research institutes — the sharpest decline since quarterly national accounts began in 1970 and double the size of the biggest drop in the 2008 financial crisis. But some forecasts then see it rebounding in 2021 with growth of 5.8 per cent.

Both Germany and France showed weaker economies pre-Covid-19. Germany narrowly avoided a recession in 2019 as its manufacturing industry was hit by the US-China trade war. France’s economy contracted in Q4 2019 as a result of widespread strikes and protests.

One buoyant part of the German economy was the service sector, but this crisis is affecting services harder than manufacturing, as industrial production has continued. 

The crisis is expected to increase the number of unemployed people in Germany by 236,000 to 2.5m, pushing the jobless rate up from c. 5 per cent to c. 5.5 per cent. That would remain well below the jobless levels of many other eurozone countries; the bloc’s overall unemployment rate recently hit a 12-year low of 7.4 per cent.

The aid package in response to the crisis will push the country into its first budget deficit for several years, equal to 4.7 per cent of GDP, increasing public debt from c.60 per cent of GDP to 70 per cent.

In Germany the proportion of people who have died after a corona diagnosis is just 2 per cent, compared with 13 per cent in Italy and 10 per cent in Spain.

Property in Germany’s main cities like Berlin have performed well for investors over the last few years, particularly for non-domestic investors looking for an alternative stable housing market in the lead up to Brexit. Property prices in these cities may well cool as international buyers take stock.

UK – in demand among expat investors

GDP is forecast to decline by just over 5% by the IMF, slightly more than Germany and France.

A three-month lockdown could cause government borrowing to rise by £218bn to £273bn in 2020-21. That would take the deficit to 14 per cent of gross domestic product, the highest since the second world war and well above the financial crisis peak of 10 per cent (OBR).

Comparisons have been drawn with the Credit crunch of 2008. During the credit crisis UK property prices declined 19% from a peak in Sept 2007 to a trough in March 2009 (Land Registry).  But the UK government stimulus now is more than tenfold the stimulus package in 2008 and it is this which will help determine how quickly and by how much the economy recovers by.

Regarding property, experts predict transactions will fall by 60 per cent in Q2 reaching a nadir in June. The Royal Institution of Chartered Surveyors predicts a drop in sales to the lowest level seen in 20 years. 

On prices – Estate agent Savills predicts a fall of between 5 and 10 per cent in the short term, with prices cushioned by low interest rates and lenders’ flexibility on arrears, reducing forced sales. The longer term impact on prices is likely to depend heavily on economic factors such as growth, earnings and unemployment. 

The UK has long had a supply: demand imbalance and the building industry has been trying to keep up with the annual supply of houses. That remains the case and is now exacerbated by vendors not being able to come to market. A significant risk currently is delays in new schemes coming to market, with different parts of the supply chain getting back up to speed after the crisis.

Some expats are still considering their investment plans given the introduction of the 2% stamp duty land tax surcharge for non-UK residents from April 2021.

Spain a big holiday home market

Spain’s economy is possibly set to suffer the most from coronavirus crisis. With limited fiscal room for manoeuvre, Pedro Sánchez’s Socialist government needs help from the EU.

Recent UniCredit research suggests that Spain is set to suffer more from the crisis than any other European economy, estimating a 15.5 per cent decline in gross domestic product in 2020 and create a fiscal deficit of 12.5 per cent of GDP.

Other economists argue that a 10 per cent drop in output and a deficit of 10 per cent of GDP are likely. That would bring total debt to at least 120 per cent of GDP — up from a previous level of just under 100 per cent — even before measures to rebuild the economy are contemplated.

Social security figures at the beginning of April showed that more than 800,000 people have already lost their jobs out of a labour force of around 19m. Unemployment in Spain was already 14 per cent before the crisis hit.

Such figures are a big reason why, despite resistance from northern Europe, Madrid is pushing for mutualisation of debt and EU-backed “coronabonds”. Whilst a €500bn financial package has been agreed, it falls short of this sharing of debt pushed for by Spain and Italy.

Spain’s economy is particularly vulnerable, owing to the high proportion of people on temporary contracts – the highest level in the EU – which has already declined by 17 per cent, compared with just a 2 per cent fall in permanently employed staff. The reliance on the service sector, including tourism, which has been knocked badly and the preponderance of small and medium-sized businesses.

Spain has limited room for manoeuvre and has been less generous than other European countries; companies are required to go on paying salaries on the understanding that their employees will make up lost hours before the end of the year.

Spain’s €100bn loan-guarantee scheme for businesses falls far short of the UK’s £330bn programme, let alone Germany which has no upper limit in place currently.

By the end of March Spain had put in place discretionary fiscal measures and guarantees worth around 12 per cent of GDP, compared to 18 per cent in the UK, 23 per cent in France and closer to 60 per cent in Germany (Think Tank Bruegel).

Conclusion on European investor markets

Many countries in Europe will need to pay for the financial support packages offered to their citizens and businesses and so this is likely to impact local taxation in a number of European countries. Southern European countries might struggle more than the Northern ones to recover.

First-time buyers and investors might be affected more in the aftermath of COVID-19, given they tend to seek higher loan-to-value mortgages. Lenders are adjusting and tweaking their offers on a daily basis to encourage or stem the flow of business as circumstances change. Lenders which have been traditionally conservative in some countries, like Germany or Poland, maybe even more so immediately after Covid-19. On the upside, we could be living with another 3-5 years of ultra low interest rates, which will ease the borrowing situation.

In the UK, several years’ of price stagnation after the Brexit referendum in 2016 may cushion the housing market in the UK and prices. What’s more there is still an imbalance of supply and demand in the UK.

The key is to plan ahead, understand and prepare for these eventualities as an investor.

Source: Mainly FT

If you would like help with planning ahead, understanding and preparing for these eventualities as an investor then please get in contact.

I work with time-strapped expats and entrepreneurs who don’t have the capacity, local presence or gaps in their know-how to build property portfolios in the right way for them. (Or who are simply stuck with little progress). This means you can carry on your day-to-day lives without spending disproportionate time getting sucked into investing.

Our clients get regular updates on hot deals and the latest changes in the property market. Want these? Go here

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How Covid-proof is the UK property market?

Only a few months ago we sighed a sense of relief that we had a majority in government and that we could move forwards politically and economically… and then Coronavirus hits the streets.…

The lockdowns across the globe are creating an interim ‘normal’ as property investing, for many, takes a back seat. However, there are still some of you checking property investments out from the comfort of your homes but have many questions like:

  • How ‘safe’ is it now to invest in the UK property market?
  • What am I best doing now?
  • What will happen with property prices?
  • Can I still get a mortgage?
  • How will the market look post COVID-19?

How ‘safe’ is it now to invest in UK property?

UK property market

The UK has long had a supply: demand imbalance and the building industry has been trying to keep up with the annual supply of houses, but has never quite managed to meet target numbers. That remains the case and is now exacerbated by vendors not being able to come to market, or at least not as easily in the past. Estate agents have stopped physical viewings, surveyors have halted site visits and many conveyancers are not rising to the challenge of digital and remote working.

All of this means that supply is constrained, but core demand is still there. UK residential stock is a defensive sector, with vanilla buy-to-lets the cornerstone.

The commercial sectors (retail, office, industrial) will, in all likelihood, suffer greater impact as commerce takes a hit during the lock down period. Although Permitted Development Rights developments will potentially get a boost as more high streets lose retailers.

Sectors such as Serviced Accommodation (short lets), Holiday Lets and some HMOs are finding the times challenging as everyone migrates back to their longer term residences. These sectors will, no doubt recover, but it might take time.

The biggest risk currently is delays in new schemes coming to market, with different parts of the supply chain getting back up to speed after the crisis. Possibly impacting bigger developments more, if there are volume supply issues with materials like bricks.

The key is to plan ahead, understand and prepare for these eventualities as an investor.

What am I best doing property-wise now?

Choose the property sector that best suits your strategy, given any risks mentioned earlier. Don’t over-stretch yourself financially over the next 6-9 months and take sensible risks.

Projects nearer completion may be ‘safer’ for investors, given the inherent delays there are going to be in the supply chain for new projects and developments. There may well be some keen prices on early-stage off-plan and new builds, as developers seek to bring cash flow into their businesses, but the risk needs to be evaluated alongside your own financial position and appetite for risk.

What will happen with property prices?

Whilst transactions have fallen away as viewings are not happening, it is less certain property prices may tumble given the level of demand for property is still present.

Many valuers have a 3-month Covid-19 Clause which indemnifies them for their valuations, so we will tend to see normal property valuations continue in the short term. But after 3 months, there will be no historic, robust, 3 month comparables. We might then see valuations being written down to cover surveyors who will be thinking about their Professional Indemnity Insurance, but demand will still be there. There are more likely to be delays bringing residential property to market than significant down valuations.

Can I still get a mortgage?

Some lenders are reducing loan-to-values (LTVs) and increasing rates, not all lenders though. Banks still want to lend. Property offers security versus many other forms of lending with little or no security.

It might be useful to consider the banks financial position, given the stronger lenders with a solid financial backing are more likely to persist with a decent flow of lending and less likely to tighten their risk-management.

How will the market look post COVID-19?

Comparisons have been drawn with the Credit crunch of 2008. During the credit crisis, the FTSE declined 43% from peak to trough. UK property prices declined 19% from a peak in Sept 2007 to a trough in March 2009 (Land Registry). 

The 2007-09 credit crisis involved different dynamics, given it was financial, with an almost-complete collapse in the banking system. Millions of people lost their jobs, their homes, their savings or their businesses as credit dried up. While the economic disruption now is immense, the long-term effects on the economy are likely to be far less severe given the speed of government intervention.

UK government stimulus now is more than ten fold the stimulus package in 2008. This gives rise to the view that the bounce back will be quicker than post 2008.

If developers survive the shut down, it could take 3 times the length of the shut-down to recover. Some contractors and consultants may not survive even if developers do, which will create delays as developers seek to replace key members of their build team.

On the upside, we could be living with another 3-5 years of ultra low interest rates, which will ease the borrowing situation and enhance leveraged-investor returns.

If you would like help with planning ahead, understanding and preparing for these eventualities as an investor then please get in contact.

I work with time-strapped expats and entrepreneurs who don’t have the capacity, local presence or gaps in their know-how to build property portfolios in the right way for them. (Or who are simply stuck with little progress). This means you can carry on your day-to-day lives without spending disproportionate time getting sucked into investing.

Our clients get regular updates on hot deals and the latest changes in the property market. Want these? Go here

Property Venture® is an award-winning, European investment property specialist and sits on the Advisory Board of the Association of International Property Professionals (AIPP) the business has been vetted, approved and voluntarily commits to Industry Regulation and the Professional Code of Conduct. We are known for our quality customer service and non-pressurised approach to sales. Take a look at what our clients say

Sources: Inspired by ‘Trusted Land’ Webinar, Invest-like-a-Pro, CER

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