House price decline could tempt overseas investors - 1st December 2008

World house price growth declined in the third quarter of this year to 3.8%, according to the Knight Frank Global House Price Index for Q3 2008.

The research reveals that annual house price growth slowed from 4.8% in Q2 2008, and average prices fell by 0.3% - the first quarterly fall ever recorded. Over half the countries in the index showed quarterly price falls, with one third also showing annual price drops.

Lithuania, Canada, the UK and Norway saw the biggest price falls in Q3 2008, with prices dropping by around 5% in three months. Latvia and the US remain at the bottom of the index, with a quarterly drop of -6.2% and -2.8% respectively. US house prices are now almost 21% down from their peak in 2007.

Meanwhile, Dubai, a new entry to the index, appears to be bucking the trend, with quarterly growth of 15.7% and annual growth of 76.1%. However, the figures are from the second quarter and do not yet reflect a sudden shift in the balance between supply and demand. When the third quarter figures are released, growth is likely to have slowed. 

Nicholas Barnes, head of international research, Knight Frank, commented: “It is now clear that no part of the world is likely to escape the credit crunch as property prices start to fall in more and more parts of the globe. Even though strong growth in 2007 means two thirds of the index is still showing an annual increase, prices in more than half of the countries fell in the third quarter of this year. We expect that trend to continue with the vast majority of locations showing zero or negative quarterly growth by the end of the year.”

Russia and a handful of Eastern Europe countries still performed reasonably well in Q3, with annual price growth even increasing slightly in the Czech Republic. However, there are signs that some of the strongest performers of previous quarters are starting to weaken. Prices in Bulgaria, for example, grew by only 3% in Q3, half the rate seen in the previous quarter. 

Simon Conn, Sales & Marketing Director at Conti Financial Services, says: “Despite the negative context, there is a positive side to the results in that overseas property may be offering improved value and this is good news for anyone who has been thinking of buying a property abroad. 

“And it seems that steps are already being taken by many of those who already own property abroad and are feeling the effects of global market conditions. Recent figures from Holidaylettings.co.uk show that some 84 per cent more holiday home owners have started renting out their properties since January 2008 in an effort to maximise the commercial potential of their properties.

“This will provide them with a valuable new source of earnings, and, for many, will help with mortgage payments. And, in the face of falling property prices, it may offer an alternative option to some who are feeling tempted to sell up altogether.”