Global Economy Helps Property Investment Prices

Globalisation of industry has led to more companies operating efficiently across countries and regions. Outsourcing of services and a shift of manufacturing to new low cost and wage centres is a trend set to continue. As under-developed countries are able to apply and manage new technology to produce goods and services cheaper, this should lead to lowering of prices over time and keep a lid on inflation.

The internet is an example of a medium that cuts across country boundaries to provide goods and services cheaper. Developed countries will have to shift towards knowledge based high-end services (bio-technology, financial management, services) and will be maximising profits and economic potential from low cost mass manufacturing centre’s such as India and China. This should all lead to lower prices, keep a healthy lid on inflation, drive down the cost of capital and keep interest rates low. Any significant wage inflation in a country would have to be met with increase productivity, otherwise goods and services would be moved to a lower cost centre quickly.

Hence the prediction is for benign inflationary pressures, higher company profits, margins and productivity and low interest rates over the longer term – both fixed and variable. I see interest rates may be rising to about 5% or 5.25% then coming back down to less than 4% as the UK starts thinking about Euro convergence and inflationary pressures die away. This should all support house prices as the new order will be that households and individuals will be allowed to borrow higher and higher multiples as capital becomes more plentiful and cheap, particularly for the stronger currencies.

It could be argued this same globalization could suppress house prices since people can buy abroad cheaper, particularly holiday homes. However, this ignores the fact that most UK citizens either have to or want to live in the UK because of they want to be near their family, friends, work and schools. This is true for most nationals in respective countries around the world.

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