Tenerife market reflects the UK

UK house prices edged up slightly for the second month in a row in January, according to Halifax's monthly index, published today. The increase was modest, a rise of 0.8% this month.  But the significance is much greater than the percentage rise.  The UK has been suffering from a stagnating, and even declining market for the last year, which naturally impacts upon demand for property in Tenerife, especially in the south.

A report at the end of last year by Tenerife Property Shop put British ownership on the Tenerife at about 42,000 homes, a significant share in an island with a population  of only 813,000, according to the latest official statistics.  Given that British ownership is concentrated in certain areas, such as the south, this influence becomes the overriding factor in charting demand and prices.

This latest news from the UK calms fears voiced by many analysts towards the end of last year, that the UK market may go into a sharp decline.  Although forecasts are still cautious, the general consensus is one of guarded optimism.  The Treasury, in a report this week, stated that it does not believe the housing market is seriously overvalued.

The underlying causes for concern about the future of the market were centred around the earnings to price ratio and predicted interest rate rises.

However, household incomes in the UK are currently increasing by 5% per annum, while unemployment continues to fall, reaching a 20 year low.  With the annual growth in UK property prices at less than half this rise, the indicators point to a gradual redressing of prices through lower growth, although some economists suggest that this correction may now have run its course. Typical mortgage repayments as a percentage of average earnings are broadly in line with long term averages, and are two thirds of the previous peak back in 1989.

Furthermore, interest rates are still low, despite an increase in the UK base rate from a low of 3.5% in November to 4.75%. Last year, City economists feared rates would rise to 5.5% in the short-term, knocking confidence in the property market. Confidence among buyers seems to be returning as those fears appear unfounded. Halifax expects rates to fall to 4.25% this year.

UK economic trends have a surprisingly direct effect on the local property market. Tenerife Property Shop report a marked increase in activity this month.  Enquiry levels from investors showed a small rise as early as the second half of December last year.  January's figures consolidated this picture of a turnaround with the number of agreed sales overtaking the figures for the previous year.

The growing trend in 'jet to let' acquisitions forms the vanguard of this heightened activity in the south of the island, but this increased confidence appears to be filtering through to British buyers in general.  Tenerife Property Shop's monthly report suggests heightened activity from those whose purchase is dependant on selling a home in the UK.  Certainly there is more optimism from this sector of the market, as UK vendors become more likely to arrange trips to the island to view properties despite having a property on the market in the UK.  Three months ago, this type of 'viewing trip' was at a historic low due to a lack of confidence that their properties would sell in the UK.  Mary Spencer of Tenerife Property Shop warned, 'Figures showing increased numbers of buyers flying out to view may be skewed by the increased energy and success of Tenerife Property Shop's UK marketing strategy and may not be representative of the market as a whole.'