Assetz® News - New stimulus for investors?

New stimulus for investors?

18th August 2009 |

For many investors in overseas property, the last couple of years have brought little but bad news. With the credit crunch has come falling prices and weakening exchange rates, as the pound has lost value against the dollar and the euro.

Of course, for some it has not been so bad. In the US, the foreclosure epidemic has provided a plentiful supply of homes up for sale at low prices and sterling has recovered much of the lost ground against its US counterpart, being worth around 30 cents more now than it was at its lowest points early this year.

In Europe, however, the picture has remained less rosy, as the pound has crept up from near parity it had with the euro around the start of 2009 but is still below normal levels. This has meant that falls in prices in countries like France have been offset by the higher cost of converting money. Not only has this inflated prices, but also living costs and the expense of going on holiday, with the latter impacting on the tourist rental sector.

Yet for those investing in overseas property, one of the key issues has been when prices might stop falling and start to offer the prospects of increasing values. One factor in that, inevitably, is the strength of the economies of these countries.

Until very recently, nearly every nation in the European Union was in recession. All that changed last week when France, Germany, Portugal, Greece and Slovenia all announced second-quarter growth.

Commenting on this, Professor Iain Begg from the European Institute of the London School of Economics said it showed one very important thing - that the stimulus packages instigated by governments have worked.

He stated: "What it does suggest is that the whole raft of stimulus packages that governments have put in place, fiscal stimulus, cutting taxes and reigning in public expenditure and the monetary policy stimulus of cutting interest rates by the central banks are now working."

The professor added: "Those who said 'why isn't it working?' three months ago will probably find that they have miscalculated."

All of this could be very good news for investors and not just in Germany and France either. Professor Begg said that the reason Britain's neighbours have come out of recession sooner than the UK is their lower reliance on financial services and smaller levels of personal debt. But, he commented, the news is still a "positive indicator" that Britain will also benefit, albeit not as quickly.

Such a consideration may be significant as well for the US, given its own larger financial sector. Indeed, given the positive sentiments that have emerged across the Atlantic, many would be surprised if there isn't positive news when the next quarterly statistics come out.

Overall, it should be noted, the eurozone still remains in a recession, with a contraction of 0.1 per cent in the second quarter, while the EU as a whole - including non-eurozone nations like Britain - saw a 0.3 per cent slide. This shows that different countries are recovering at different rates. It also may suggest that France and Germany may offer a better property market bet than many other overseas destinations at the moment.