March 4, 2014
During the years of crisis, buyers have almost forgotten the postulate that the purchase of real estate in Europe allows you to make money out of rising prices. Now the question is different: to buy a house near the sea for your own use, without paying attention to the dynamics of price changes, or to invest not in resort market, but in more stable markets, with the potential opportunity to sell quickly and try to get rental income.
When the question is posed like this, Bulgaria, Spain, Latvia, Estonia, Finland, Cyprus, Greece, Montenegro, Turkey and Germany become the most demanded European countries according to the number of requests and the number of transactions every year.
Markets of these countries, leaders of Russian audience choice award, behave quite oppositely. There are countries where the decline was minimal even during the crisis, that they won glory of "the most stable markets" (Germany, Finland). In some countries the prices, that dropped by half some years ago, have already started to increase significantly (Estonia, Latvia). Somewhere they have barely stabilized (Bulgaria). Somewhere they are still continuing to decline (Spain, Cyprus, Montenegro). These days all this multidirectional movement is optimistically called the recovery process.
According to the forecast of the country’s government, this year GDP of Germany will grow by 1.8%, and in 2015 - by 2%. Other Eurozone countries can only dream of such index. There is investment boom on the property market: according to Financial Times, in 2013 Germany topped the list of the most popular European countries for investors.
According to Global Property Guide, housing prices in Germany rose by 9.61 % in Q3 2013, compared to the previous year. Big, medium and small investors are attracted by the fact that the value of real estate in all segments of the market is growing, and banks are ready to provide loans to Russian buyers with average European rate: 4-5%. In 2012, the price per square meter of liquid real estate in Munich, Nuremberg, Cologn, Frankfurt am Main has increased on average by 15%. 2013 showed a similar trend.
"Adequate purchases in Germany are an office, an apartment or an apartment house of 4-6 or more apartments"
The development of production projects, new jobs, the influx of migrants - all this, according to German realtors, has caused rent rate increase by 15-20% over the last five years. Germany should not be considered by those who are looking for holiday properties, or those who’d like to simplify their entry to Schengen countries. Consultants agree that the adequate purchase here is an office, an apartment or an apartment house of 4-6 or more apartments (depending on budget) in a big or medium-sized city, where there is a high demand on the rental market. Budgets of such purchases start from €60,000, in the case of a single apartment. Profitability of such properties is 5-7% per annum in average.
While in other Mediterranean countries prices fell like an avalanche under the influence of the crisis, Cypriot realtors and developers reported about stability. During the critical period of crisis for many neighboring countries, price decline for resort real estate in Cyprus was not more than 10-15% per year. It lasted from 2009 to 2011, until the banking crisis brought down the market. Fall in prices and recession have not released the small island country yet. We remind that in March 2013 the Cypriot banking system suffered a crushing blow. The government was forced to temporarily close the banks and introduce flow of funds control, which is still in effect. Cyprus had to ask for foreign assistance. In 2013, the decline in GDP was 8.7 %. Forecast for this year is decline in 3.9%.
In 2013, according to the Cyprus Department of Land, sales fell by 51% compared to 2012. If we consider the drop in sales by regions, in Nicosia it was 66%, in Famagusta - 60%, in Larnaca - 55%, in Paphos - 44% and in Limassol - 34%.
Economic instability, lack of liquidity, high interest rates, record levels of unemployment and uncertainty about the future development of the property market in Cyprus: these are parts of the economic picture 2013. In total prices fell by 25-40% per annum in different segments of the market Analysts are predicting continued decline in housing prices this year.
However, it is not easy to pull off balance Cypriot developers, implementing multimillion projects in resort cities of Larnaca and Paphos. Although now the sales are certainly not as active as before the crisis. Before the crisis the part of foreign buyers was 50 %, but then it fell to 20 %, but almost all of them are from Russia. Nowadays the average budget for an apartment at the seashore or in the mountains in Cyprus is about €90,000, for a villa it starts from €250,000.
These day sellers willingly trade down their properties, but you have to buy without a loan: getting a mortgage in Cyprus is impossible, as well as to agree on payment by installments with a developer.
5 years of growth in the property market, five years of recession, and the long-awaited stabilization, that has immediately caused bold predictions about the upcoming new growth. In reality, the purchase and sale transactions of resort property in Bulgaria are still far away from the concept of "investment", however, this country has been the leader in the number of sales of real estate to the Russians for many years. Bulgaria is on the last position in the EU in terms of GDP per capita, but at the same time, credit institutions in the country operate accurately, having returned to pre-crisis rates.
"The main reason is a cheap holiday apartment on the sea"
In 2013, according to the National Institute of Statistics, the annual decline in apartment prices was the national average of only 0.24 %. Accommodation prices in Sofia will increase by 2.13%. Resort sector shows a decline in some places, and in some - growth by hundredths of a percent. That means stabilization. The average price per square meter in Sofia is €736, in resort areas it is from €450 up to €1,500. These prices are still about 40% below pre-crisis peak.
Transactions with the Russians are mainly in the segment of €35,000 - €60,000 and the number of buyers in the last year or two is growing significantly. The main reason is a cheap holiday apartment on the sea. Such nuances as a payback resulting from the following resale or rent are not discussed.
Since 2009 the Spanish resort property market flew down like an avalanche, quickly and extensively: there has not been such a crisis of overproduction in this market segment in any other EU country. Fall in prices for illiquid real estate was over 50 %, and for high-quality options it was up to 40%.
Last year the central bank of the country provided uncertain data on the termination of the recession: in Q3 2013 GDP growth was 0.1%. Growth, that is about to start after 9 consecutive quarters of economic contraction, is caused by increased export of Spanish industrial goods. Decrease in domestic demand, unemployment and labor migration to neighboring countries: according to these points Spain is on a par with Bulgaria, Greece and other weak countries of the EU.
However, from the Russian buyers’ point of view, all these disadvantages become advantages: low prices on everything from real estate to consumer basket, the possibility of bargain, inexpensive labor. Prices for resort properties in Spain are on the same level as in Cyprus, with the only difference that now they have minimum reduction: depending on the region, it ranges from 1.5% to 9% per year.
This country has never attracted by the rapid increase in prices, and therefore the price fall after the crisis was minimal: in the range of 10-15%, and it mostly concerned expensive hoses. In the sector of urban apartments in the capital, Helsinki, there was no price decrease at all. Banks of the country have a careful credit policy, they often refuse even to residents, not to mention foreigners. According to realtors, it slows down the market.
"Basically these are investment purchases in Greater Helsinki for renting out"
The amount of Russian demand is about 400 transactions per year. Before the crisis, the main demand was for cottages near the border and for more distant ski resorts, but today it has shifted towards apartments in the capital. Basically these are investment purchases: renting out in Greater Helsinki (Espoo, Vantaa, Kauniainen) brings 5-8% per annum. Prices are from €1,500 per square meter. The cost of renting small apartments in Helsinki and suburbs grows every year by approximately 2-3%, as well as the cost of the land (in 2013 growth was around 5%).
Over the past decade Greek real estate has not had a rapid increase in prices, so now, during the crisis, there’s nowhere to fall from: local realtors said it in 2009, 2010, 20011 and they say so up to now. However, according to the average data, Greece became one of the leading countries in terms of falling prices in 2013. According to Knight Frank’s data, only for the year housing prices have fallen by 9.1%, and for the last 5 years – by 37.6%.
Greek market is not standard: here was neither building boom, nor irresistible rise of prices, nor expansion of Russian investors. And drop in prices looks messy: general reduction is 5-7 %, but sometimes, if an urgent sale is necessary, discounts on some properties reach 30-40%.
The Russians buy houses and apartments mainly in Crete or near Athens. Last year, the willingness of the Greek authorities to issue a resident status as a bonus for a purchase from €250,000, became an additional incentive to buy real estate in this country.
Today, on the coast of one of the four seas, that wash the country, you can find an apartment that costs €50,000, a townhouse from €100,000; prices for villas start from €200,000. The most expensive property is in the capital of Hellas but here it gets repaid faster and quicker. Monthly rental of a house on the seashore in a suburb of Athens costs €1,500-2,000, which is considered expensive for Greece, the monthly rental of apartments in the city center is €300-€450. There is nothing about loans.
Nowadays the Estonian real estate market strikes imagination: five years ago the prices halved and the country plunged into a recession, and it’s the second consecutive year when statistics shows a sharp rise again.
Before 2000, the average price per square meter for apartments in Tallinn did not exceed €300. Then the housing boom from 2000 to 2007 increased the prices for apartments in Tallinn, Tartu and Parnu by 4.5 times on average. This was influenced by the decline of bank interest on mortgages of up to 4%, and overall economic growth, which amounted to an average annual rate of about 9%. In 2007 in Tallinn the average price per square meter was €1,629, in Tartu - €1,020, in Parnu - €1,047. And by 2009 transactions of apartments looked already dull: price per square meter fell by 50%. And banks raised interest rates twice: up to 8%.
"There is likely to be a rush among the buyers once more. The Russians, the Finns and buyers from Asian countries entered the market"
Today, the prices for apartments in Tallinn are again almost equal to the maximum pre-crisis values. Banks have lowered interest rates again, however, they do not give loans to non-residents. But despite that, there is likely to be a rush among the buyers once more. The Russians, the Finns and buyers from Asian countries entered the market. EBRD forecasts GDP growth in Estonia in 2014 at the rate of 2.8%. Rise in prices for square meters in the capital, according to Global Property Guide, was 12.46%, taking into consideration actual transactions for the year. Renting out brings 6-7% per annum.
However, the Estonian Province behaves quite differently: almost all the cheapest apartments and houses n Europe are focused here, for the price of €15,000. But realtors, frankly speaking, do not recommend even considering such options, not to mention buying them.
Monstat data on prices and the number of sold apartments show a significant recovery in the construction segment. In Q4 2013, 244 apartments were sold, and the average price of a square meter was €1,236. Compared to the same period of 2012, the number of sold apartments increased by 20 % and the cost of square meters - by 6.8%. However, compared to the previous half year the cost per square meter, on the contrary, decreased.
The highest average price for new apartments in the last quarter of 2013 was recorded in Budva - €2,455 and the lowest one in Niksic - €582. The average price per square meter in Podgorica was €1,113, in Bar - €1016, and in other cities the average cost was €629. In total, 852 properties were sold in 2013, which is 70% more than the previous year. In 2010, a small growth, literally less than one percent, started in the economy of the country. In 2013, GDP growth was 1.5%. In January, 2014 EBRD gave a forecast of 2 percent growth of economy in Montenegro this year.
Montenegro is unlikely to be appropriate for short-term investment, as no one can predict the rise in prices and an increase in liquidity of properties on the market in the coming years. As in other resort countries, the main buyer’s argument is short and clear: "I want!"
In 2013 Latvia steadily became one of the leaders for the Russians among the most demanded locations for buying real estate abroad. The main point that greatly increased popularity of Latvia is introduction of the simplest procedure for obtaining the EU residence permit. Last year more than 3,000 Russian property buyers requests resident status in the country. If we compare these data with the total number of transactions in other European countries, it is clear that Latvia is seriously ahead.
"All urban real estate is for long term rent, bringing the traditional for the EU 5-7% per annum"
In 2013 the number of transactions with residential property in Riga, compared to the previous year, increased by 14%, and it happened to be a record for the last six years. Average prices for apartments in Riga increased by 3% per annum. Prices in the metropolitan areas are €1,500-€3,500. If we do not take into account the luxury sector, the average price of a liquid secondary housing in cities of Latvia is €550-€870 per square meter. All urban real estate is for long term rent, bringing the traditional for the EU 5-7% per annum. And forecasts for Latvia sound almost the same as for the markets of other small European countries that have experienced a serious drop in prices after the crisis, and now they are demonstrating market recovery and slight growth. Stabilization, continued moderate growth, introduction of new development projects.
One of the most powerful economies in the world, a country, that is on the 15th place by GDP, Turkey has not experienced the impact of the global financial crisis as much as the EU countries and it attracts Russian buyers and investors by its stable and growing market. More than a million sales are made annually in the country.
In the recent years, the Russians sign more than 2,000 sale and purchase transactions annually on the Turkish resort property market. The Russians are the second in the ranking of the most active buyers of Turkish property. Growing demand from the Russians has been caused by the easing of immigration legislation that came into force last year, and cancellation of "principle of reciprocity" in 2012.
Global Property Guide's latest report called Turkey one of the strongest property markets in Europe: average annual growth in prices of 4.65%. According to realtors, from January 2010 to the beginning of 2014, property prices in Turkey rose by 29.3%.
The Russians typically buy apartments in Turkey for €65,000-€90,000. Experts believe that the independence from the Eurozone is an additional advantage that allows the Turkish market to keep going up.
Text: Julia Lozovskaya, especially for ee24.com