Will 2017 see a global property meltdown?

Are property prices about to slump?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The global property market has been a major beneficiary of the monetary policies pursued in recent years. Low interest rates and quantitative easing have not only made borrowing cheaper, they have pushed asset prices higher. However, now the outlook for monetary policy is more restrictive. Higher inflation in the US could be exported across the globe. Could this signal the start of falling property prices this year?

Changing times

The election of Donald Trump could prove significant for global property prices. He is apparently in favour of adopting a looser fiscal policy, with taxes set to fall and spending forecast to increase. This could push inflation higher, which could be exported across the globe. The likely effect of this would be a tightening of monetary policy, with interest rates across the developed world likely to rise in order to cool higher inflation.

Higher interest rates would not only mean existing borrowers have more difficulty in servicing their debts, it could also mean that demand for new loans falls. After all, debt is just like any other market. If it is cheaper, demand is likely to increase. If it is more expensive, demand is likely to fall. As such, it would be unsurprising for global property prices to experience a slowdown of some sort this year.

Uncertainty

As well as higher interest rates, the effect of a Trump Presidency and Brexit could be to cause uncertainty among investors. This may cause a delay or the cancellation of investments in property, since investors have been shown to prefer to make significant purchases when the outlook for the global economy is more robust. This could hurt demand yet further and given that Trump has a four-year term and Brexit talks will last for two years, reduced demand for property could be witnessed beyond 2017.

Long-term factors

Despite this, property could prove to be a sound asset to own in the long run. Another effect of inflation beyond having the scope to push interest rates higher is to erode the value of debt. In other words, a higher rate of inflation will make debt worth less over time in real terms, so that it gradually becomes easier to repay. This is particularly the case for investors who are able to fix their debt at today’s low interest rates.

In addition, the world continues to face pressure on housing. The world’s population is expected to rise by a third between now and 2050, and in much of the developed world there is likely to be a lack of supply in the long run. Therefore, even if global property prices fall somewhat this year, it could prove to be a worthwhile opportunity to invest. That’s especially the case for those investors who are able to fix their borrowing rate. For them, the global property market remains relatively enticing.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »