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Buying Property in Recession Hit Europe

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Buying Property in Recession Hit Europe

By - Thursday 02 June 2011

European countries in debt are increasing in popularity for investors seeking holiday homes and rentals.

Among property investors planning to purchase their holiday homes from another country, 8 out of 10 are eyeing the European countries most hard-hit by the recession.

Several of these debt-burdened countries, namely Portugal, Ireland, Italy, Greece and Spain, have been grouped into the somewhat insulting acronym of PIIGS. They are inundated with debt, and Portugal, Ireland and Greece have necessitated a bailout to stay afloat.

Analyst Stephen Hughes stated that, with the exception of Greece, the PIIGS nations have received many property investment inquiries, and among these countries, the most popular has been Spain. Analysts have also said that while the interest in buying a home in Spain is still behind the inquiries into France, evidence demonstrates that Spain is becoming the more popular choice.

So will PIIGS homes begin to fly?

Spanish house hunter inquiries to currencies.co.uk have grown by 27 percent during January through March of this year compared to the same timeframe last year, and inquiries into Portugal, Ireland and Italy have risen between 18 percent and 22 percent.

It must, however, be noted that this rise comes up from an extremely low base. The trend of the past four years has been for homeowners to sell in Europe and migrate back home, leaving the market with a large amount of properties. These actions are driving down prices.

Buyers in the best position to take advantage of this present situation are those with large amounts of cash who will not have to deal with a mortgage and the currency arrangements that come along with it. Purchases don't tend to be impulse buys, rather, they are purchases from buyers who spot bargains and react rapidly.

HiFX foreign currency specialist Mark Bodega doubts that many of these enquiries will translate into actual purchases, but he does agree that the few that do will be from cash-rich buyers seizing the opportunity and able to ride out market downturns and wait for the negative property market to change.

Bodega says that most Europeans are wary of making any investments in overseas properties until the recession fades. He notes that France is the one exception, because their property prices were affected the least. Those purchasing property in France tend to be older, more affluent clients who have been waiting out the last several years but now wish to wait no longer to find the perfect place to enjoy their retirement. Agents in France are reporting sales of one or two properties per month, though they once reported 10 or 20.

Spain's property prices in most of its regions have fallen. This country has been the favourite second-homeowner spot for the European investor for a while. Near the end of the last year, the Balearic Islands and Andalucia have seen prices drop by 2 percent.

A leading property portal in Spain, idealista.com, shows that sellers in record numbers are lowering their asking prices. Mark Bodega maintains that plenty of bargains will be available for quite some time, because banks in Spain still possess large numbers of uninhabited, unsold villas that they have been unable to sell at any price.

Jeremy Cook, Economist at World First, wishes to warn prospective buyers to exercise caution. He says that with the falls lately in the sector of Continental property, true bargains definitely are available, but as in any investment, risks exist as well. Cook says that with the problems still rampant in these affected nations, recovery still seems to be elusive, and it will likely remain that way for some time.

Chief Executive Rupert Lee-Browne of Caxton FX says that the likelihood of a rise in interest rates in the Eurozone is great, and it will cause the cost of homeowner loans to increase across these 17 nations. Along with the increase of loan defaults and the rise in number of repossessions, property prices will drop dramatically.

Rupert Lee-Browne also says that the property markets of the countries that have been bailed out already and of those countries reeling from the burden of their debt will keep falling in the short-term. His suggestion to all potential property buyers is to wait until later on in the year to make a property purchase in these four nations.

Adding to the difficulty is the fact that interest rates were increased last month by the European Central Bank, increasing the euro's strength against the pound and thereby greatly raising the expense of a major purchase.

Hughes admits that though interest remains much higher than in recent times, there has been a slowdown since the ECB raised the rates. He says that people looking to buy in the coming months are tending to wait a bit in hopes of a sterling spike. 

Duncan Higgins of Caxton FX agrees. He says that for buyers, holding off for the next few months could be worth their while.

This guest post was written by Andrew Potter who works for My Online Estate Agent. My Online Estate Agent offers all the tools found at a traditional estate agents and a comprehensive set of guides that cover topics such as advertising on Rightmove and how to value your property.  

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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.


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