BoE examines emerging market house price trends

BoE examines emerging market house price trends

Investors interested in owning emerging market property could find that house prices grow faster but are much more volatile than in the UK, Bank of England statistics have shown.

A 40-page Bank of England report, Working Paper No. 522: Global Liquidity, House Prices and the Macroeconomy: Evidence from Advanced and Emerging Economies, looked at 33 emerging economies and 24 advanced economies from 1990 to 2012.

It found that while house prices could grow more quickly in the emerging markets, which could be attractive for buy-to-let and expatriate investors, this was combined with greater volatility.

The report said: “House price inflation is higher, less persistent, and much more volatile in emerging markets than in advanced economies.

“Over the period 1990-2012, real house prices grew 2.8 and 1.6 per cent per year in advanced economies and emerging markets respectively.

“This is consistent with the faster growth of output and consumption in emerging economies.”

But it added that emerging market house prices were twice as volatile than in advanced economies, saying: “Note that house price volatility is about a third of equity price volatility in emerging markets, but it is only about a fifth of it in advanced economies.”

The report also found that the persistence of house price inflation and consumption growth was much lower in emerging markets.

The Bank of England created a quarterly house price data set for the report, covering 33 emerging markets with a “minimum coverage from the early 2000s to 2012: Q2 for all countries except Mexico and Morocco” and combined it with data on 24 advanced economies from the OECD house price database.

The new data set used information from the OECD house price database, the BIS property price data set, the Federal Reserve of Dallas international house price database, national central banks, national statistical offices and academic and policy publications about housing markets.

Adviser view

Matthew Bird, independent financial planner for Gwent-based Seer Green, said: “If you have got an economy that is growing fast like some of the emerging markets, then it follows that house prices would be going up.”