What really affects the prices of overseas property?

Hello and welcome to the Someplace Else Blog

You may remember that last week I used the example of two very different ESRI reports and their corresponding headline summaries in the national press to illustrate the importance of using a variety of research sources before making a major decision.

So, this week I thought I’d (very) briefly write about some of the factors that really affect the prices of property, in the hope that it may help some of our research minded readers focus their efforts in the right direction.

These following factors are listed in no particular order:

FDI & Economic Growth:
It is very important to examine from the ground up how the people are living and how their lives are improving in a country. Look at overall GDP to determine how much wealth the citizens have now but pay more attention to GDP growth and whether the reasons for this growth are sustainable.

Examine Foreign Direct Investment carefully, as FDI from other countries or multi national corporations can have a profoundly positive effect on a countries economy.

Employment
As more workers mean more potential buyers, investors have always been attracted to countries or regions where there is strong sustainable growth in employment and wages. An investment that has the potential to be resold to a local person is generally more secure than one that is depending on a future foreign buyer.

Availability of Finance
Whether or not financing is available in a country can have a huge impact on the property market. Without financing locals can rarely buy new property, and so the number of buyers (and the demand) will therefore be limited. When mortgages become available however, the property market and prices can accelerate very quickly in a relatively short space of time, as has been previously witnessed in the Baltic States. Also, if you have financed a property purchase, even if it is only a 50% mortgage, the effects of capital growth are doubled.

Interest rates
These rates (set by the ECB in Frankfurt for EU citizens) typically have an inverse relationship with property prices. When interest rates fall, property prices tend to rise as it is cheaper to borrow, when interest rates rise, property prices tend to fall as it is more expensive to borrow and cheaper to save.

Inflation
Setting aside the careless populist rhetoric we often hear on television and newspapers, it’s difficult to explain in a nutshell how inflation affects property prices, but here goes: it goes rises and falls depending on the factors affecting (a) the costs of producers (land prices, taxation, labour, cost of raw materials) and (b) the demand of buyers (interest rates, employment, market sentiment, economic growth, availability of credit)

In addition to the above, there are many other factors such as availability of land, planning regulations, membership of international organisations, infrastructure and government policy which are all worthy of further consideration.

That’s it for me, if anyone has any ideas or issues they would us to address in future blogs, please let us know.

Warm Regards

Colin Murphy
http://www.someplaceelse.ie/