Property Investors Update
Housing Market: The UK housing market was starting to soar as expected after the General Election result, but the onset of the Coronavirus panic-crisis is likely to start affecting the property market in the next few months. The USA dropped interest rates by a fairly hefty 0.5% on 3 March and there are definitely signs the UK economy is slowing. Since 70% of the economic GDP is service business related, one can understand with people going out less, being less adventurous, more cautious.
Flu: The main season for flu is from October to mid winter in October again. Since Coronavirus rather like SAR, Swine Flu and the like has a big psychological impact on people they will feel less bullish, more risk averse and less likely to make large financial commitments hence its likely to start feeding through to the house price market in March.
Stimulus: However, counter to this is the possibility the Bank of England could drop interest rates and/or start printing currency again. Its been 12 years since the last recession so one is due and Coronavirus globally could be the trigger. Another Black Swan event.
Gold and Silver: So in times of uncertainty, potential currency printing and recession with turbulent markets, the very best investment short term is likely to be gold and silver. If there is either massive inflation or deflation caused by the economy going out of control then gold is normally a winner. Remember there are 7 billion people on earth but only 0.5 billion Troy ounces of silver so thats one ounce for every 14 people. One ounce only costs $17. Its the bargain of the century especially as it is used for mobile phones, medical equipment (a sterile metal) and it high conductive and non-corrosive.
Oil Price Collapse: It seems new economic and social situations are accelerating. For example, on Friday 6 March, the Russians and Saudis disagreed with the OPEC-plus production cuts, then the Saudis announced a reduction of $8/bbl for April Saudi crude meanwhile Crown Prince Mohammed bin Salman imprisoned two family members for alleged treason plotting a coup then oil markets opened 9 March down 30% from $45/bbl to $30/bbl the biggest one day drop since 1991. An oil price crash has occurred in a moment and with it global shares particularly of oil companies crashed. This is all during a period of incredible uncertainty for the global economy because of the Coronavirus outbreak. The OPEC cuts totalled 1.6 million bbl/day and they were looking for another 1 million bbls/day to offset a potential 4 million bbls/day drop in demand from Coronavirus. Global demand normally runs at around 100 million bbls/day so if the Saudi really do open the taps increasing production from around 9.5 million bbls/day to 12.2 million bbl/day there is likely to be a massive over supply of some 5 million bbls/day. The Saudis are playing a game of punishing Russia, USA and Iran with lower oil prices but of course they also punish themselves. They also went to destroy marginal US Shale Oil companies and probably also stimulate demand. But they tried this in 2014 and it spectacularly failed they U-turned. It could just be a bluff to bring people back to the negotiating table we will see. Whatever happens, we cant see oil prices rising over $45/bbl and there could be years at range $30-$40/bbl henceforth after this latest collapse. This will be very good for property investors in oil importing nations since it keeps a lid on inflation and feeds through to lower interest rates and higher house prices.
Focus: The focus really has shifted far away from property prices and investment most people seem pre-occupied with Coronavirus and we expect this sentiment to lead to a dampening of demand for both rental and property sales. The UK economic is likely to already be in recession as of early March people are going out less, travelling less, working less, and the service sector is taking a hammering along with retain sales of all but essential items.
Stimulus of Oil Prices: So the lower oil prices, likely eventual currency printing and lower interest rates are likely to stimulate the fragile economy hopefully prevent it going into recession. The Tory government infra-structure spending will also stimulate the economy. The big unknown is the degree of dampening from Coronavirus likely to be large in the UK and rather devastating in places like China and Italy. As the flu season draws to a close end April we might get a rest-bite until October when the flu season starts back up again and cases rise again causing more panic and overstretched medical services.
Budget: We will update later in the month. But for now, at least property investors can look forward to a 4 year Tory government creating some stability and the March budget will hopefully throw up some positive surprizes.
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