The Greek Debt Crisis: How Might it Affect UK Real Estate Investments?

The UK’s outsider status relative to the Euro is an advantage. But the crisis has a ripple effect throughout the world, and might indirectly impact British investors.

 

Investors across the globe are riveted on the near-weekly announcements on the status of the Greek-Eurozone crisis. As well they should: the complex interplay of economies within, without and possibly exiting the European Union are a game of chess taken to a third dimension. The August 2015 bailout deal was the latest pause in the unfolding scenario.

 

Which begs a question for those investors who put their money into UK joint venture real estate partnerships. Will whatever happens to Greece and the Euro affect us? How might loans, defaults and austerity measures affect the success of a joint venture that is building homes in Peterborough?

 

The short answer is probably not much. The buyers and builders of luxury homes in Central London might feel an effect, but only very indirectly. It’s well known that wealthy foreigners from China, the Middle East, Russia and elsewhere are in the majority, buying pricey flats and homes in the Capital City. With the rare exception of those who find themselves cash-strapped due to the Greek crisis, it’s unlikely they will reduce their spending in England. The UK is their safe haven, after all, from the volatility and instability their assets are exposed to elsewhere.

 

Another slight effect on UK housing investments might come because some risk-driven investors see an opportunity in Greece at this moment. A lifestyle reporter at Forbes.com wrote in July that a leading Greek real estate website has seen a curious uptick in interest in Greek properties, likely driven by a 50 per cent drop in prices and 90 per cent drop in transactions since 2007. The web traffic is not from potential Greek buyers but instead from people in other countries that include Russia, Italy, France, Turkey, the US, Australia and Canada. It’s surmised that these are countries with historic associations with Greece and a large population of Greek expats. Perhaps they see a recovery at some point in the future, and they’re willing to buy a bargain that can weather the storms that occur in the short-term. If they are spending their Euros, Dollars or Rubles in Athens, it’s possible they are spending less in London.

 

Not that the effect is all that noticeable. London’s population, at an all-time high of 8.6 million people, continues to experience double-digit house-price increases in 2015, a multi-year trend.

 

Nor is the broader UK economy terribly vulnerable. The Bank of England published its biannual Financial Stability Report in July 2015. While vigilant over how a crisis contagion might affect the financial services sector, BoE Governor Mark Carney told The Telegraph, “A series of defences are in place and depending on how events unfold, those may be tested,” he said. “A persistent impact on economic activity [in the UK] is unlikely.” The Telegraph explained that UK bank exposure was at most 1 per cent of the sector’s capital buffers. HSBC is the most exposed of the large lenders, however the others might feel the effects if the crisis were to spread to Germany, France, Italy and other countries where those banks have a greater volume of business.

 

Perhaps the most vulnerable borrowers who are engaged in real estate investing – buy-to-let landlords – would suffer from a rise in interest rates because many of their loans are interest-only. Those types of mortgage holders account for 18 per cent of the flow of new mortgages; an interest rate rise might overwhelm their property income.

 

UK capital growth fund investors essentially ride independent of the big banks, putting their money into raw land acquisitions that become residential and commercial properties. Rather than relying on a natural increase in value, these funds target strategic land opportunities where planning authorities can grant a use change. The capital growth then is expedited, even as much-needed new homes are built.

 

Investors of all stripes should pay attention to the global economy as well as what’s happening in England and in their own portfolios. An independent financial advisor is highly recommended for objective advice on all investment dynamics.