Despite an increasing degree of political integration, (threatened by the current economic crisis), Europe remains a group of separate member states. Local laws and customs, culture and economic strengths and weaknesses contribute to differences between the property markets of Europe’s member states. In Spain and Ireland, property bubbles collapses catastrophically after 2008 and in the case of Ireland, the direction of ten years of economic growth was reversed immediately. The success story that proved what could be done with Euros and a positive attitude became the example and the precursor to the rest of Europe. In Germany, policymakers fear a bubble now, as the Spanish market struggles to come to grips with the fallout from 2008 following a slower decline than Ireland’s.
Despite the tendency across Europe for house process to fall (Germany being the exception here as in so many other things, including solvency), most European house markets actually remain overpriced, according to The Economist. The paper lists two components of what it refers to as ‘fair price’: the price-to-income ratio, a gauge of affordability and the price to earnings ratio of property, which is used to judge the equity of listed firms. Using these measurements The Economist crunched data provided by wire services, banks and survey companies to get a view of European property markets and reports that almost all are well above fair value. Spain’s housing market is a quarter over fair value, for instance, despite having been hard hit by the recession. Britain is well above too, by 22%, while Germany is under fair value by 19%.
For British buyers, the key issue is the performance of the property market in the destination country as against in the UK. For this, the fair value figures are no clear guide. For instance, if the British housing market is 20% over fair value and the German 19% below, now should be a good time to buy a house in Germany. But that’s a misleading view: Berlin was once famous for its low cost of living and as a result attracted many ‘artists,’ but its prices are now approaching those of other European capitals. It’s cheaper than London, but so is almost everywhere except New York. In more ordinary German locations, prices vary dramatically but are more in keeping with British ones: the average house price in the UK, £240k, buys studio apartments in urban centres and 4-bedroom detached houses in more rural locations.
Spain, whose housing market at first glance seems to have more in common with the UK’s, is actually further removed from it. Following the collapse of the Spanish bubble, in which massively undercapitalized real estate firms fell victim to the simultaneous withdrawal of credit and consumer and investor confidence, the Spanish market may be 25% over fair value – but it still offers bargains for British buyers. The Spanish market has fallen 31% since 2008 and flats built for the tourist market on the coasts can be bought for half their original £240k price tag. However, the key to understanding the Spanish property market is to observe that it is traditionally a nation of renters; prices reflect the availability of local employment.
Another area of Europe that’s attracting interest from investors is Eastern Europe. Houses and apartments near the Black Sea are being touted as the solution to the slumping market in the rest of the EU, as Bulgaria offers the type of investment opportunity once thought to be represented by Spain. However, this is mainly a market for investors and is rapidly coming to adjust to new investments: plots of land may be available for £40k, but seaside apartments are running at £200k.