Put your holiday home on hold

By Staff Writer Ruth Jackson Sep 19, 2008

Ruth Jackson

Tighter lending rules and rising inflation have knocked British house prices – and consumers – for six. But we're not alone. The latest global survey from Knight Frank shows that house prices are falling around the globe (see below). Annual global growth slowed to 4.8% in the second quarter of 2008, down from 6.1% in the first and 7.8% the same time last year.

The biggest falls were in Latvia, where prices dived 24.1% in the past year. Yet this time last year the country topped the index with annual growth of 37.7%. The sharp turnaround is down to an "overheating" economy, says Bank of America economist David Hauner on Forbes.com. Along with its Baltic neighbours, Lithuania and Estonia, Latvia's acceptance into the EU in 2004 saw them adopt the monetary policy of the European Central Bank, which, "for their growth, was far too loose", says Hauner. Housing bubbles formed as domestic and foreign investors took advantage of low prices and the storming growth rate. Now high inflation, a slowing economy, and rising interest rates have seen property prices in the Baltic states crumble. The impact on Latvia has been worsened by new stamp duty rules introduced in 2007.

"Investors who bought second homes in Bulgaria have reason to feel bullish," says Patrick Collinson in The Guardian. Bulgaria has had the highest growth in the past year, with prices up 32.2%. But while a growing manufacturing industry has boosted the Bulgarian economy and had a knock-on effect on house prices, storm clouds are gathering. Much of the boom has been down to foreign investors. But reports in the Sofia Echo suggest a severe oversupply in the resort areas where foreigners buy. Estate agency Bulgarian Properties said in August that holiday property sales in the Black Sea region and mountain resorts had fallen by 40% year-on-year in the first half of 2008. With money getting tighter at home, foreign investment is likely to fall even further.

Of the few countries that recorded faster growth rates over the past year, Knight Frank warns that most are expected to plateau or nosedive over the next few months. The Czech Republic has seen growth rise from 20.5% in the second quarter of 2007 to 25.4% this year, but "there are already signs of a downturn". Russia looks most promising, says Knight Frank. Price growth has "picked up speed over the past quarter" as rising wages enable more Russians to buy homes. But a look at the broader picture shows price growth has halved in Russia over the past year, from 53.7%. With Russia suffering its own financial crisis as the oil price and stockmarkets dive, now is not the time to sink your money into its property. We suggest you sit tight a while before buying a holiday home anywhere.

Global house price index

What the property indices are saying

• The Communities and Local Government House Price Index stated that house prices rose by 1% in July, putting it at odds with other house price indices.The Government figures, based on completions, reported a 0.3% fall in house prices over the year, with the average price falling to £217,171. Prices are down 0.3% in England, 0.8% in Wales and 10.3% in Northern Ireland. Scotland still shows a 3.6% rise in house prices over the past year. But a report earlier this month from the Edinburgh Solicitors Property Centre reported that prices in Edinburgh had fallen "for the first time in 40 years" by an annual 6.5%.

• Home.co.uk reports that asking prices for houses on the market in England and Wales have fallen by 0.9% this month, leaving the average asking price at £250,971, down 2.5% on the year. Asking prices in Greater London have dropped by an average of £7,000, or 2%, to £344,170, according to their figures.

• Baghdad's housing market is reviving due to a lull in violence, says Reuters. House prices have doubled in some parts of the capital in recent months, with properties selling, or being leased, as soon as they hit the market. A three-bedroom, 150 sq m apartment in the Karkh district of Baghdad (once an al-Qaeda hotspot) now costs $130,000.

• The biggest jump in Libor (basically, the interest rate that banks charge each other) in seven years "could wreak further havoc on the US housing market", warns the Chicago Tribune. Almost six million American mortgages are linked to Libor, which more than doubled to 6.44% on Tuesday after the collapse of Lehman Brothers.

Published in Property | More articles by Ruth Jackson

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