A new report suggests that the coronavirus pandemic has prompted a worldwide boost in house prices.
The Global House Price Index is assembled by estate agent Knight Frank, and collates data on 56 countries. The report for Q4 of 2020 shows that across the world, house prices are rising faster than they've done since 2018 – and this is despite (or more likely because of) a global pandemic.
Fastest rises mainly in emerging markets
Nearly 90% of countries analysed saw price rises, but emerging markets saw some of the biggest gains. The fastest rate of house price growth in 2020 was recorded in Turkey, which saw an almost unbelievable surge of more than 30% on the same period in 2019.
Other countries where house prices saw large gains included New Zealand, Slovakia, Russia, Luxembourg and Poland. The United States was in 7th place with 10.4% annual growth and the UK was in 12th place with price rises of 8.5%.
A double-edged sword
Of course, spiralling house prices are not necessarily good news. The second-highest growth rate was recorded in New Zealand, where house prices rose a whopping 19% in 2020. In countries like these, the rate of growth is causing huge problems for residents.
In the case of New Zealand, it’s rapidly approaching a crisis point at which homes are simply no longer affordable to first-time buyers, and indeed one of prime minister Jacinda Ardern's key campaign pledges when she came to power in 2017 was that she was going to try and get a hold on the property market. To that end, she's recently asked the Reserve Bank of New Zealand (RBNZ) to deliberately consider the effect of their decisions on the property market – particularly when it comes to interest rates.
Property purchases in the time of Covid
The effects of worldwide lockdowns provided the background to these figures. Most of the interest in property purchases appears to have come from domestic buyers looking to move into larger properties (sometimes in greener, more suburban or rural locations), while travel restrictions have seen foreign investment drop off to some degree.
This latter trend was most obvious in southern European countries like Italy (which only saw a modest rise of 1%) and Spain (where property prices dropped 2%). These countries were hit particularly hard by the pandemic, the draconian lockdowns and the resulting economic damage, but they're also markets that might normally hope to see a decent amount of foreign investment.
If we've learned anything from the past year it's that the housing market seems to do a pretty good job of confounding expectations. However, certain factors may affect the property sector over the coming months.
As governments begin to taper off the vast grant payments that they've been doling out to try and shore up locked down economies, there's a possibility that the man on the street may have less money in his pocket in 2021 than he did in 2020. This in turn may make people less keen to tie up large chunks of capital in property or commit to hefty mortgages.
If, on the other hand, economies recover more quickly than anticipated, that may lead interest rates to rise – which in turn would make it more attractive to save and less attractive to take out a mortgage, potentially depressing the housing market. Either way, it looks hopeful that house price growth may slow up a little.
Finally, there's the question of travel restrictions. Most of the world has spent the past year confined close to home, but if foreign travel begins to become easier once more, then people may consider buying properties abroad again, and this might stimulate corners of the property sector that are currently rather depressed. For example, would-be British expats may once again start looking for their retirement villas in Spain, and wealthy overseas investors might renew their interest in central London property.