Property prices have gone down in many countries in Europe. But is it really the right time to invest in real estate in Euroland at the moment? The future for many euro countries looks bad, no one knows what will happen. What are the risks with buying a cheap house in the sun?
The property prices in many countries in southern Europe have plunged. Combined with low interest rates, it can look like a once in a life time opportunity to secure a place in the sun. But while property marketers are touting the advantages, most economists are worried about the risks. The countries there property prices have fallen the most are stuck in deep depressions. Nobody knows when things will improve but it certainly looks like it will take time, quite possibly a very long time. This means that property prices in those countries are likely to continue to fall. And then there is the risk that some countries may drop out of the euro. In that case, the new currency would deprecate a lot which for foreign property owners would mean a heavy loss.
Looking at specific countries in Euroland, Spain stands out in many ways. The Spanish property boom was huge but that also meant that once the bubble burst, the problems were huge as well. The Spanish economy is, to put bluntly, a basket case, the unemployment is extremely high. And it will probably get even worse. It is no trouble finding property bargains in Spain, at least compared with the prices before the crash. But as mentioned, the only quick solution for Spain is to leave the euro. It is extremely unlikely that Spain would drop the euro but quite clearly the country needs a weaker currency. It is probably best not to put in a ridiculously low offer on a Spanish house, you could very well end up as the owner! The overhang of unsold properties is enormous. Becoming a landlord in Spain is best avoided at the moment, the high unemployment means that people have trouble paying the rent and the enormous number of empty units makes it tough to find tenants.
Greece and Cyprus have similar problems as Spain. But the future for those two countries is very uncertain, it is best to wait and see. Unlike many other countries in southern Europe, property prices in Italy did not skyrocket before the global financial crises. House prices in Italy have not fallen as much as in many other Mediterranean countries but the writing is on the wall. The Italian economy has been shrinking the last couple of years and while the situation is not as bad as in Spain, the economy is likely to continue downhill for quite some time. Property prices have been falling since 2008 and are likely to keep on going south. Being a landlord in Italy is not easy, rent controls and restrictions are keeping the yields down to 3-4%. If you find your dream house in Italy, it can be a good idea to buy it but don’t expect to make a quick buck. It will take time before house prices start to increase in Italy and there is a risk, albeit extremely small, that Italy may leave the euro as well.
France is a very popular tourist destination and foreigners also buy property in France. The French economy does not have the severe problems as many countries in southern Europe but it has started to get trouble coping with the strong euro. Property prices have begun to fall and the government wants to increase property taxes. Quite a few financial experts think that the economic problems in France have only started, it will just get worse. According to some recent studies, property prices in France are far too high and need fall about 40%. If France gets stuck in a recession, such falls are far from unlikely. But unlike Spain, there is not an enormous amount of unsold properties in France so prices will not collapse. It is also worth noting that closing costs are very high in France.
It is no surprise that the otherwise sleepy German property market has started to heat up. Property prices in Germany have had trouble keeping up with the inflation. But since the global financial crises, prices have started to increase. One reason for this is buyers from southern and eastern Europe. Together with Russians they have started to buy property in Germany, especially in Berlin, Hamburg and Munich. Often without worrying too much about the price, they simply want German property. Why do southern Europeans buy property in Germany? Because they want to protect themselves against economic disasters at home. The only viable solution, but politically impossible, for most southern countries is to leave the Euro. Something that would hit property prices badly in those countries.
So should you buy property in Euroland 2013? Yes, if you find your dream house and you are well aware of the risks. You need to make sure that your finances can survive a financial disaster. It is very unlikely that it will be a good investment in the short-term. Also beware that a lot of people suspect that governments are likely to increase taxes, especially for foreigners who can’t vote them out of office. What about buy-to-let investments in Euroland? Well, the German market is a reasonable option but you need to know what you are doing. Here is more information about buying property in Germany. Only a fool would try to become a landlord in southern Europe at the moment.