Advice To Investors Caught In The Worldwide Property Slump

Posted on May 6, 2008
Filed Under Real Estate |

The worldwide property boom was responsible for increasing the wealth of many people. Fuelled by a plentiful supply of money money which led to mortgages being available 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 new get-rich-quick scheme as owners used equity in their homes to buy houses and flats to let flats and houses to rent to those who could not get on the housing ladder.

Holiday homes too became a ‘must-have’ and these apartments and villas villas and apartments were let to holidaymakers when not in use by the owner, thus producing rental income which helped cover 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 America but its effects are being felt worldwide as both property sales and prices fall. The move 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 now buyers have to provide at least a 20% deposit and interest rates are higher. One third of sales are falling through because of lack of finance and the number of agreed mortgages has fallen to an all-time low.

Other countries in the EU are experiencing similar tales of woe. Spain has suffered the worst. Here the boom peaked in 2004. Prices started to fall due to overbuilding of villas and apartments on Spain’s Costas villas and apartments on Spain’s Costas and the falls have been exacerbated by the rise in the Euro against other currencies, and of course the credit crunch. The British have traditionally formed the bulk of the buyers of holiday villas in Spain 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 fewer people own their homes 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.

With many owners wanting to sell but unable to do so, the only answer is to try to let their properties. Foreign holidays have yet to feel the draft and continue to grow, albeit slowly. 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

Advice To Investors Caught In The Worldwide Property Slump

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