Just wondering how worried those owning property abroad and those selling overseas are about the potential for the rising price of oil to send flight prices through the roof. Could this have a terminally detrimental effect on the industry or is it seen as merely a blip that will pass with time?
My view: Sustained high oil prices causing expensive flights will certainly have an impact on at least the market psychology in the medium term (3-5 years), especially for markets that are dominated by Irish and UK based investors, but that isn't the real problem.
Cheap flights were never here forever. Look at the cost of Easyjet and BMI these days. They really are very little different from BA or KLM. Ryanair will almost certainly go that way long term too. So the cost of travel will increase. But it was always daft to rely on a single airline with a single cheap link to choose your location. Nice used to be a prime low cost airline hub. Not any more. Things like this change.
Expensive flights aren't the biggest risk in my view.
More established locations will pull through long term, but may have a serious mid term dip. There were good reasons why people went to Spain and the US (e.g. Florida) on holiday or to live, even in the seventies. People will continue to relocate there too. Not just from the UK & Ireland.
These property markets are also the ones that are seriously tanking in the short term. I don't know if everyone has seen the reports in the last week, but the UK, US and Spain are all seriously suffering now. Inventory levels are high (11 months +) and there is still an over supply of appartments, whilst people prefer houses. We are still very much on the turn down on capital values. It could take years to get rid of the current inventory that is now being delivered. Over supply of poor quality builds is much more of a risk IMHO.
So for me, the "buy to holiday let" strategy seems very risky: lower capital values coupled with a lower chance of rentals.
You really need a broad and deep rental market, which is why so many other posters on this list focus their strategy on long term rentals in capital cities: you are not tied to just potential tourist rentals, but also ex-pat and local workers on long term contracts. Capital cities have not generally suffered from massive redevelopment of brown field sites and over supply of appartments like e.g Manchester.
But sustained high oil prices do not just hit the cost of travel.They also suck money out of companies and the consumers' pockets for the rest of the year, meaning less holiday rentals and less ex-pats and lower spending power for local workers. More importantly, it also directly fuels consumer price inflation. In turn that will mean higher interest rates which, coupled with stricter lending criteria resulting from the credit crunch, will also make property investment less interesting generally. It was the high gearing and ability to borrow against low rates that made property investment attractive for most people in the first place.
Meanwhile central european economies are also fighting with imbalances and budget problems, so they are not that attractive either IMHO. There are still serious currency and interest rate risks for non-euroland investments.
It's time for rate cuts, and yet central banks cannot drop rates i) because the governments can't afford to re-inflate their economies and ii) because inflation is threatening to get out of control. They're caught between a rock and a hard place. Especially since most of the inflation is imported.
Not sure how many other people on this list can remember the 70's or the 80's, or even the last (minor) recession in '92.
I think we're going to look back with fondness at the period since '92: we had constant growth, record low interest rates, easy access mortgages with high LTV, increasing prosperity, low unemployment, low inflation, undersupply of housing, increasing capital value, and cheap travel.
All of those factors are now threatened: not just the cheap travel. That for me is the real risk here. High oil prices are removing the last positive factors for domestic property investment in a market that is anyway probably at or near a cyclical peak.
I must admit that my personal sentiment on the market has changed recently. I was looking at the UK and distressed sellers, but now I've decided to hold off. It won't be all doom and gloom. But it probably wont be a V shaped blip either. So I think it is better to wait until there are real signs of improvement before diving in: if at all. Or you may just be lucky/smart enough to already be an established investor with a stable portfolio and a stream of guaranteed tenants funded by e.g. the government...
I have instead been looking at investing in container shipping: that has a good solid upward growth trend and is pretty easy to understand, but even that could be badly affected by high oil prices dampening demand for imported goods.
An oil shock is bad for everybody. Even the oil majors and the oil producing countries. There's not much that Gordon Brown, President Bush, the BoE, the Fed, or the ECB can do about it. And it looks like that's where we're heading. Where's the incentive to produce more oil when your asset lying in the ground is accumulating in value, whilst the assets that you pump above ground reduce in value as the dollar goes down? Let's hope I'm wrong.
