The boom in property prices worldwide has increased many people’s wealth. Fuelled by a plentiful supply of money money which led to mortgages being offered to almost anyone just for the asking, property prices rose exponentially and, with the stock market in a sideways to down trend since 2000, property became the investment of choice as owners used spare cash in their main property to buy houses and flats to let property to let to those who could not get on the housing ladder.
Vacation homes too became a ‘must-have’ and these apartments and villas villas and condos were let to holidaymakers when not in use by the owner, thus producing rental income which helped fund the purchase cost.
But as so often happens with any investment bubble the property boom has ended in tears. The credit crunch may have originated in the USA but the ripples are being felt everywhere as both property sales and prices fall. The swing of the pendulum from easy to tight money has been swift and, whilst in many countries there are buyers wanting to get on board the housing ladder now that prices are lower, the cheap and plentiful mortgages to enable them to do so is hard to find. In the UK mortgages that provided a risky 125% of the price of the property were common place during the boom but today buyers have to come up with at least a 20% deposit and interest rates are higher. Around one third third of sales are falling through because of lack of finance and the number of agreed mortgages has fallen to an all-time low.
Elsewhere in Europe there are similar tales of woe. Spain has suffered the worst. Here the boom peaked in 2004. Prices started to fall due to overbuilding of apartments and villas on the Spanish coast apartments and villas on the Spanish coast and the falls have been exacerbated by the rise in the Euro against other currencies, and of course the credit crunch. Most newly built villas and apartments on the coasts in the last few years have been bought by the British but a combination of falling prices at home, more expensive credit, and a rise in the Euro of 15% against the pound have resulted in the British withdrawing from the Spanish market.
Whilst other European countries have also experienced falls in the prices of property, these have not been so dramatic. The falls have been mitigated by the fact that owning property has not been so fashionable in countries like Germany and Switzerland. In Germany only about half of the housing stock is owner occupied, whereas in Switzerland, it is much less than half with the majority happy to rent.
Many property investors would like to sell but, because of the absence of buyers, are unable to do so. For them the only answer is to try to let their properties. Fortunately, the number of people taking foreign holidays continues to grow, albeit at a slow pace. The routes covered by the low fare airlines continue to grow and the number of people taking self catering holidays now outnumbers those on all-in package holidays. So if your holiday home is located in an area that attracts visitors for most of the year, you should be able to ride out the downturn without too much pain. If you bought nearer home, those unable to buy now must rent; so make your property as attractive as possible and hope that rental income does not fall as a result of over-supply.
Tags: Real Estate