How will the Ukraine conflict impact the global residential markets?
For global residential markets arguably the two biggest concerns are the impact on interest rates and that of buyer confidence.
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The Ukraine situation is first and foremost a human tragedy, but it has direct and serious economic implications which are of legitimate concern and interest to investors of all types.
If inflationary pressures mount faster than anticipated central banks face a tough choice of whether to act earlier than planned, scuppering their strategies for a soft landing from the pandemic. But equally feasible are downside economic risks which could stay the hand of rate setters if they see slower GDP growth on the horizon.
The first scenario, that of rate rises, will have a bigger impact on mainstream housing markets. Cash buyers, particularly during the pandemic, account for a bigger proportion of sales at the prime end of the market.
Overseas transactions will also be influenced if we see rate hikes. As currencies strengthen the direction and volume of cross-border flows will alter.
Sentiment is harder to gauge. The upswing in consumption evident during the pandemic may be curtailed. Amassed savings, wage rises, and the easing of travel bans has buoyed buyer confidence. For some, a second home purchase may be put on hold temporarily, for others the conflict may expedite their desire to have a bolt hole.
A lot rides on the length and scale of the conflict, President Putin’s end game is yet unclear. Capital Economics suggest the market response to date has been orderly suggesting no expectation of contagion and a wider war across Europe.
In times of uncertainty, usually identifiable by a surge in the price of gold and a return of stock market volatility - both evident in recent days - property’s attributes as a tangible and illiquid asset class often comes to the fore. This flight-to-safety trend may strengthen in the coming weeks.