Real Estate Markets in Europe - Current Situation
The article topic Property Abroad
1 Sep 2012
In this month’s newsletter, coinciding with the launch of our renewed and expanded website, we provide an overview of the situation of the main European property markets. We hope you find it helpful.
The Economy – Positive Signals
In spite of the perception of “crisis”, global GDP has continued to grow on the first half of 2012 driven by emerging markets and the recovery in the USA. In Europe, we find two different “blocks” of countries:
- Northern and Central Europe (e.g., Scandinavia, Germany, Austria) are performing resiliently, with solid GDP growth
- In peripheral countries (e.g., Greece, Ireland, Portugal, Spain) the GDP continues to shrink, as governments cut spending to reduce public deficits
The overall outlook has improved throughout the summer, and it’s significantly more positive than a year ago, as reflected by the strong rise in European shares. The main driver is the strong determination shown by the European leaders and the European Central Bank, who for the first time confirmed this summer that it will do “whatever it takes” to sustain the euro.
This has been interpreted as a signal that the ECB is ready to print more euros if necessary to support struggling European countries. This may in turn lead to higher asset inflation in Europe, so markets are starting to anticipate the possibility of higher prices for European equities, real estate, commodities, etc.
Property Prices – Each Country is a Different Story (and even each region!)
Property prices tend to lag the economic evolution by a few semesters. This is the case in the US, where all indicators are showing that the phase of house price declines has finally finished in 2012. Property prices at a national level are rising again for the first time since 2007.In Western Europe, as with the economy, we find that the situation is country specific:
- Germany: after two years of strong price increases, property prices have increased at a more moderate pace in the first half of 2012. These solid rises are mainly driven by the “safe haven” status of property during periods of crisis: throughout history, investors and wealthy individuals have turned to property at times of financial crisis, as property has generally held their value better than financial assets such as equities or shares.
- UK: like GDP, prices at a national level have remained stable during 2012. And like GDP, prices have continued to increase very strongly in London in this first half of the year, rising again at an annualised pace of almost 10% in Central London. In euro or Czech crown terms, the increase has been even higher, as the pound has appreciated significantly against both currencies in 2012. Property prices in prime areas of London are now some 20-25% higher from their lows in 2009. The reason for this sustained and strong increase in Prime London property prices is that London is one of just a handful of truly global property markets: wealthy people from different countries in Europe, Russia, the Middle East, China, etc. are investing large amounts of money on London prime property. London continues to be the preferred city for the global wealthy.
- France: price increases have started to slow down in 2012. The strong increases in recent years (French property prices are at the highest level ever) is generally seen as unsustainable, and investors generally expect that Msr. Hollande and the new Socialist Party government will pass legislation targeted at moderating property price increases.
- Italy: at a national level, prices have been relatively stable.. However, whilst prices of properties in certain cities are well below their maximum levels (discounts of ~30% are not unusual for old properties in some cities), prices in sought after locations like the lakes in the North or prime areas of the Coast remain very stable. The concerns about the economic situation of Italy in 2010 and 2011 seem to have receded, thanks to the wide range of measures passed by the Monti government. Property buyers and investors seem again attracted by the unique holiday locations in Italy (e.g., around lake Como, Sardinia, etc.), as well as upcoming areas (e.g., Puglia, Calabria).
- Spain: amongst the large European countries, Spain is the country where property prices have declined the most, already 32% from its 2008 peak . After this significant correction, property prices are now reaching more reasonable levels compared with salaries or disposable income. The national average price is now around 1800 EUR/m2, which is almost half of the price in France.. The real estate sector continues to be essential to the Spanish economy, and the government has passed in 2012 a significant number of new laws targeted at supporting real estate (more information on our section dedicated to Spain). The consensus is that there are areas and sectors where property prices will continue to decline (e.g., old flats in the outskirts of large cities, new developments far away from the closest city) for several years. However, desirable properties in good locations seem now fairly priced, and many see this as an opportunity to acquire a good property for the long term (e.g., 100 m2 new built flats of good quality in good coastal areas available below 200,000 euros, properties in prime location in Madrid, Barcelona and Valencia starting to bounce back in price).
- Austria: Austria has avoided the real estate boom and bust cycle, thanks to a very solid economy, and significant legal restrictions on construction and acquisition of properties by foreigners (recently changed following EU pressure). Prices have risen steadily over the last 5 years, and the first half of 2012 has been no exception. Prices in most desirable ski and holiday areas are at their highest level ever. However, at 3,000 – 5,000 EUR/m2, prices in some popular ski resorts are still around half of those in equivalent areas in France, Switzerland or the Italian lakes. Hence, the general expectation is for sustained and steady price increases of around 5% per annum in the coming years.
- Portugal: in spite of its relatively small size (similar to the Czech Republic), Portugal is the third European market for property abroad after Spain and France. Western Europeans are attracted to Portugal by its coastline, friendly locals, a large number of golf courses, inexpensive lifestyle and cheap property: at an average of 1,100 EUR/m2, property prices are the lowest in Western Europe. Prices have continued to decline moderately in the first half of 2012. The general concerns about the macroeconomic situation of Portugal have somewhat alleviated, so foreign buyers are starting to return to the property market, particularly cash buyers (no mortgage) for new developments around golf courses.
So, in light of this information, is now a good time to buy property abroad?
In general, the sustained increase in purchasing power of Central, Northern European and emerging countries over the last two decades, combined with lower property prices in Western Europe over the last 3-4 years, has made property in Western Europe more affordable than ever in the last decade(s).
With the exception of possibly a few areas (e.g., some areas in Austria, some distressed properties in Spain), we don’t believe the double digit increases in property value common in the noughties will be achievable in the short term.
However, for those looking for a second home by the sea or in the mountains, or those looking for a long term solid investment, we believe the current situation provides an opportunity to make a good deal in an uncertain market with an unprecedented level of offer to choose from.
We would like to finish by wishing a warm welcome to Domus Global to those who visit us after the launch this month of our renewed webpage, which includes lots of useful information and properties.
We invite you to explore the website in detail or to contact us if you want more information.
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