Why Sub-Prime affects real estate investing worldwide

June 08, 2008 // Posted by: Joel Teo // Category: Real Estate Investment

The effects of globalisation:

Its rather telling that a combination of US Funds like Colony Capital and the bad credit crunch that has hit the US is a factor that affects real estate investing around the world.

For those that are not in the financial world and wondering why our markets are now so interdependent, I’ll try to simplify an answer.

US Banks for the longest time tried to sell the risk of their bad loans to other banks and did this via debt securitization. ?The international debt markets work in the same way and since credit in the US is short, so some of the smaller markets cannot raise debt capital thus affect real estate investing, building and development worldwide.

Its quite telling that this cycle is similar in the US as it is in Singapore thus showing some evidence of this. ?In Singapore recently some investor said that the lowest in the Singapore property prices would be in two years and this is also echoed by the guys over by the Head of National Association of Home Builders in the USA as reported by the guys at the REIC Blog.

Let’s do a quick global analysis of property trends worldwide.

London

In London, as a result of the sub-prime crises and the recent lay-offs of investment bankers and other financial staff by major banks in London, the property prices both in terms of capital gains and also rental have suffered a hit and is expected to trend downwards as London growth has been fueled by the financial sector for the longest time.

Prime location has a great report indicating the current trends in London.

USA

Its quite telling that the bad economy and the sub-prime issue continues to dampen consumer spending and as a result real estate investment in the next two years may be dampened. ?In fact housing prices have fallen at the fastest rate ever as reported by S&P.?

For more information click here.

Australia

I’m personally thinking of investing in Australia once I save enough for a down payment in a property there as the economy in Australia is booming due to the large commodity demand from India and China.?

The Property Prices in Australia have also dropped steeply due to interest rate adjustments. Click here to learn more.

Resources in this article:

REIC Blog :

http://reicblog.com/real-estate-investing/builders-sees-no-full-recovery-until-2010/

Prime Location (London) Price index:

http://www.primelocation.com/house-price-index/

US Property Prices Article:

http://www.msnbc.msn.com/id/24367064/

Australia Property News:

http://calculatedrisk.blogspot.com/2008/06/australia-house-prices-fall-most-in.html