Searching for the cool property picks of 2014
Brisbane could be a left field choice and there is still value in London areas
The year 2013 has been fantastic for most major property markets around the world. The US has seen prices up 12 per cent in the residential sector, with New York back to the peaks of 2007 and with very low inventory levels.
The UK has also seen positive price growth with London being the star performer, with 66 per cent spent on London housing coming from domestic buyers. It is always important that you invest in a market where there is a defined exit strategy and London offers just that with the number of domestic buyers set to increase considerably.
In Asia we have seen Singapore slow down driven by varying factors — the 15 per cent foreign stamp duty to be paid on all properties and a slowdown in population numbers in recent years. In Hong Kong, the top of the market has been slow but the HK$40 million and below has been steady all year with a moderate price growth of around 3 per cent across the residential sector.
Closer to home we have seen Dubai market rally with prices increasing significantly in 2013, a trend which reminds me a lot of 2007.
Best global markets
The question is where are the best global property markets to invest in 2014? Before I give my top picks I want to cover some key fundamentals to pay close attention to when investing.
Firstly, you need to ensure that the jurisdiction allows foreign investors to legally own property in that country. Asian markets such as Mainland China and Vietnam are great examples of strong property markets with strong GDP numbers and strong fundamentals, but do not allow foreign investors to solely own property there.
Although these markets look favourable on paper, if you don’t legally own the property, the chances are you will lose money, not make it. You also need to pay attention to the supply and demand landscape.
You need to invest in locations where you have greater demand outweighing supply levels. If you’re buying as an investment, you need to look for a market with strong tenant demands so that your property gets tenanted quickly and is income generating.
If your property is empty then it will cost you money. Domestic activity is important as this will play an active part in both having the property tenanted but also your exit strategy when it comes to sell on.
Last but not least, you should look to markets where the local banks lend to foreign investors as well as domestic buyers. If you can lend money in the local currency to where the property is, with reasonable LTV levels (around 60 per cent) and the cost of borrowing is relatively low (around 4 per cent) then you have favourable investment conditions.
Two top picks for 2014
Now onto my two top picks for 2014. The first will not be a huge surprise to most, but I still see a lot of value in certain areas of the UK which I feel are undervalued. There are certain areas of London in particular which are set to benefit from government spending and infrastructure projects, which will cut commute times into London considerably.
Locations such as Ealing, West Drayton and Hayes for example will benefit from the London ‘Cross Rail’ development which when completed in 2018 will cut commute time into Prime London, considerably.
Recent reports show that one in three tenants in the UK are set to purchase their first homes in 2014. Higher lending levels and government incentives are fuelling the increase in demand from first-timers.
The markets l believe will be the most active are in the southeast and the London commuter belts, as well as some home counties such as Oxford and Cambridge. The price bracket I see value in is the £250,000–500,000 and will see the highest volume of transactions and appeal to first-timers. Ultra-prime London prices will still increase but yields will soften; the 5 per cent yields that were available in 2013 will strengthen and shorten as prices continue to increase.
Brisbane is a market I really like the look of, more specifically around the Fortitude Valley area where vacancy levels in the residential sector run below 0.8 per cent. Brisbane is a market that has been motionless over the last six years and is now well positioned to benefit from the large corporates moving in the valley.
With low unemployment levels, a young population and with a property market just starting to strengthen, this location of Brisbane has a bright future and is currently undervalued. Local banks will lend up to 80 per cent LTV to foreign investors and with the cost of borrowing a little over 4 per cent, 2014 will be big for Brisbane as Australian-focused investors look for value.
With Sydney and Melbourne having already witnessed significant price growth, Brisbane is set to be the new hotspot.