Today’s big news puts me in mind of an ancient Greek legend tells the story of a large wooden horse that was used to conceal a band of soldiers. This band of soldiers were able to enter and ransack the city of Troy without so much as a sword being raised by the Greek’s Trojan enemies.
Another event that will be written in the history books for centuries to come will be one of the closest ever competitions in Europe and it had nothing to do with the European Football championships.
The result of the Greek elections gave everyone concerned with European economic stability cause for a collective sigh of relief.
The modern day Trojan horse now threatening Greece, Spain and even Italy is filled with sovereign debt and the big news is that for now at least, it has been stopped in its tracks by the results of the latest round of Greek elections.
So what does all this mean for property investors considering investment in European property? What can we expect from what on the surface appears to be good news?
The right party won – just. However the competition was as close run as it possibly could be and this doesn’t bode well for those expecting a stock market rally on the back of it.
The results where as follows:
New Democracy 29.6%
Golden Dawn 6.9%
You don’t need to be an expert in Greek politics to realise that this leaves the winning party with a job on its hands to find a partner that will give the country a stable government.
Opposing political parties will often club together for the greater good of the country in times of crisis, so there is at least a chance that we may be at the beginning of the end of the crisis.
Plus there is so much riding on Greece staying in the Euro, it is unthinkable that they will leave anytime soon. The big problem is that if they do – Italy and Spain will follow, as they will likely take the view that paying their debts when another country is allowed to write theirs off is less than fair.
With this in mind, if you are a property investor looking beyond the scare stories of Greece leaving the Euro – now might be an excellent time to invest in property.
We can expect the Greek crisis to continue playing itself out in the next 12 months and this will keep the value of the Euro low against the pound and other currencies as the uncertainty continues.
We can also expect stock markets to continue getting the jitters every time anything bad appears to be happening in Greece, which means investing in safe havens like property and gold will continue to appeal.
Since June 2010 the FTSE 100 has grown by 1.88% and there is little reason to think this rate of growth will improve this year. The banks, nervous about their own balance sheets will also continue rewarding savers with poor interest rates no matter how much money is released into the economy.
Commodities are also losing steam as economies remain sluggish in the face of austerity when governments should really be looking at ways to grow their way out of the slumber they have been in for the past four years. Without growth people don’t need as much of things like oil.
What investors need however is a safe haven for their cash and at the moment Property and gold are being talked about as the best bets. Gold is up more than 4 percent so far this month, this was its biggest rally in more than three years and this is mainly due to fears about inflation.
UK finance company Paragon Mortgages also claims that the average property investor has increased the size of their portfolio to 14.1 properties in the second quarter of the year. This is up from an average of 12.9 properties in the first quarter of 2012.
The reason for this is investors often turn their attention to gold and other tangible assets because they have intrinsic value making them easier to convert into cash or other goods.
For those considering investing in gold, however, there is further food for thought.
Analysts are taking the view that property may well outstrip gold as the preferred place to invest. Home prices have actually gained 15% against gold in recent years – couple this with a return on capital in the form of rent and property seems far more attractive.
Another attraction for foreign investors in Spanish property is that the value of the pound against the Euro is climbing again. The markets don’t trust Greece and it will take time for them to feel confident about its long term prospects hitting the value of the Euro in the process.
Greece will continue to be a large mill stone around the neck of the European currency and it will weigh heavily as long as the country remains part of the club. There is also the need for Europe’s economies to start growing and they may need to devalue the Euro further against other major currencies to achieve this.
Once again this week the pound has been flirting with the €1.25 mark and there remains a real possibility that it will continue climbing to as much as €1.35 by the end of the year. This will reduce the value of Spanish property even further and create unprecedented opportunities for investors to achieve substantial locked-in equity until the situation in Europe improves in the long term.