Advice and Opinion

Property investors shy away from France as election beckons

George Radford, Director of Africa of property investment firm IP Global.
George Radford, Director of Africa of property investment firm IP Global.

While it seems increasingly likely France will vote for a centrist pro-Europe government, the shocks of Brexit and the election of Donald Trump in the US prove that nothing is certain.

With the presidential race in France now narrowed to Marine Le Pen and Emmanuel Macron, and Macron widely expected to win, property investors are shying away from France until they know the outcome and France’s intention with regard to its EU membership.

“If France were to leave the EU, two of the three biggest EU members would have left and this does not bode well for economic stability in the region,” says George Radford, director of Africa for global property investment firm IP Global.

“One could expect some economic turmoil, a plummeting euro and short term volatility in the European market,” Radford says. “At some point, however, this may provide opportunities for investors.”

“Uncertainty creates opportunity but investors need to be cautious,” says Radford.  “We are certainly recommending investment in the relatively safer havens of the UK and Germany at this point, but believe investors can look at other pockets of promising investments in Europe.”

Despite this uncertainty, research by property advisory group CBRE on the real estate market outlook indicates that Europe remains a key target for property investors globally and that the economic outlook for the European economy remains generally positive.

CBRE expects that economic growth, higher inflation and the possible normalization of interest rates will be positive for Europe. The erosion of spare capacity in the big cities is expected to drive rental growth.

It expects the recent growth in the private rental sector in the UK to continue, with another two million households forecast to join the sector over the next decade.

Investment volumes in the sector are expected to increase significantly, as investors continue to be attracted by the demand dynamics, government support and strong total returns offered by the UK residential market.

Germany, similarly, continues to remain attractive to property investors. The migration into the metropolitan regions, low vacancy rates and increasing but insufficient completion rates, means price growth will continue to be robust, the report reveals. Low interest rates and a “flight into tangible assets” are driving price increases in condominium investments.

While interest in Germany will remain strong, a lack of product may result in declining investment volumes.

IP Global believes the UK and Germany remain the largest investment destinations.

“Elections and political uncertainty in various European countries highlight the UK’s relatively good position,” says Radford. The UK is one step ahead of other European countries in terms of leaving the EU, and it has always retained its own currency, so extricating itself is less complicated.

Radford says crises in other areas in Europe, as was experienced in Greece, also result in an inflow of investment into the relatively stable UK property market.

Radford expects to see a similar trend again – with wealth flowing out of Europe into the UK. “While we expect Macron, who is pro-Europe, to do what he can to ensure France does not have referendum, if Le Pen is voted in, France’s position in the EU is less certain,” he adds.

“Bearing all of this in mind, we continue to favour property investment in Germany and the UK,” he says. “The German property market remains strong, with Berlin and Hamburg doing well. There is also strong growth in Austria as well as some parts of Spain.”

CBRE indicated that renewed interest in cities like Madrid and Dublin reflect investor interest in Europe’s recovery markets. Its research showed that London was ranked the most attractive city for real estate investment, while Germany was ranked the EMEA’s most attractive country, followed by the UK.

While this ranking is in line with previous research, both Germany and the UK have increased popularity compared with the previous year, indicating that their high liquidity and transparency continue to sit well with investors, according to CBRE.