As soon as the growth was replaced by a correction, a wave of defaults began – thousands of houses went under the hammer. The blow was dealt not only to American creditors, but also to most Western countries, whose banks had American mortgages in their portfolios. This is how the global liquidity crisis arose: there was not enough money in circulation. Central banks began to reduce interest rates, but this accelerated inflation, which was already accelerated by high prices for oil and agricultural products.
One of the consequences was a reduction in demand for foreign real estate from buyers from the United States and a number of Western European countries. Against the background of a decline in consumer activity, the volume of supply increased: some owners simply had to sell real estate abroad in order to cope with financial problems. This is most typical for buyers from the UK, and among the countries from which the British are most actively withdrawing capital, Bulgaria is called. At the same time, Russians, who traditionally depend little on loans, have significantly increased their share in the Bulgarian and a number of other markets.
A holy place is never empty
The specter of a sale is haunting Europe. Involuntarily, doubts arise: are the British leaving because of problems with financing or just leaving the "sinking ship" in advance, while Russian citizens enthusiastically board it? In Spain, the crisis in the real estate market has already led to structural problems in the economy. Experts warn that the volume of construction in Spain will be halved in two years, as in the United States. In Bulgaria, there are more frequent cases when apartments in a ready-made complex are sold cheaper than they cost at an early stage of construction. In Dublin, says Irina Zharova-Wright, president of the Sesegar investment group, house prices have decreased by 30% in just three months.
On the one hand, apocalyptic estimates and forecasts sound. For example, some politicians in Spain claim that the real estate market is experiencing a real collapse. But everything is not so clear. Resort real estate, which is most often bought by foreigners, is a somewhat isolated and, moreover, heterogeneous segment of the market. In addition, a lot depends not only on the country, but also on the class of real estate.
On the other hand, many experts assure that the situation is not so clear, and in the expensive segment of resort real estate there is no decrease in value, just the volume of supply and the duration of the exposition have increased. "If we consider Spain, prices for liquid facilities have not fallen – there are just more offers," says Dmitry Shevchenko, CEO of Absolut Terra. This applies not only to the most popular resorts in Spain or the French Riviera, but also to the expensive segment of cheaper markets (Bulgaria, Turkey), as well as to countries from the middle of the price range – Cyprus and Italy.
"The most important remark is that not all segments are experiencing a correction," says Gennady Tuzov, Managing Director of EstateService. – We can talk about a drop in consumer activity, but not about a drop in prices. Many owners of secondary real estate have purchased their homes at a significantly lower price, so even with the current "soft landing" of the market, they remain profitable. What can we say about luxury resorts in Spain, where people bought houses and land back in the 1980s? Is it worth mentioning that the Cote d'Azur does not feel the impact of the mortgage crisis at all? And those segments that are most actively promoted, including in Russia, actually suffer the most from the fluctuations of the global economy, because demand there is artificially warmed up and customer enthusiasm easily fades away."
Borrower, don't relax
At the same time, it should be borne in mind that the legislator, taking care of the interests of local business, provided for a simplified option for the seizure of property for which a mortgage was taken, saving his domestic business from having to look for a foreign buyer and sue for years in local or international courts. "Therefore, do not relax," advises Gennady Tuzov, "the better mortgage conditions you are offered abroad, the easier it is to lose your property if one day you could not or forgot to make the next payment."
Citizens of countries with a developed financial sector have experienced this rigidity for a long time. A striking example is the United Kingdom, where there are a number of banking programs and mortgage brokers specializing in a variety of loans to buy a home abroad. You can pay dearly for freedom of choice, since if you delay payment, you can easily lose your main and only home in the UK. The system is equally strict in the United States – they can evict from home, regardless of whether the borrower has the only one or not.
Therefore, problems with the payment of loans often lead to the sale of foreign real estate. That's why the mortgage crisis is good for buyers, because there are sellers who urgently need to save their credit history and basic housing in their homeland.
"Many foreigners actively used mortgages to finance speculative operations," says Gennady Tuzov, "which is normal only in conditions of general market stability and disastrous in global crises. Now, when the overall picture is not very clear and no one undertakes to make forecasts about rising mortgage rates, people prefer to take out fewer loans, including mortgages, especially for the purchase of a second or fifth home."
Against all odds
While the activity of British and European investors has sharply decreased due to financing problems, realtors are trying to calm the market with increased demand for foreign real estate from Russians. Reg Cone, representing the British luxury overseas real estate agency Unique Living, says: "The current credit crisis is causing British buyers to mistakenly expect dramatic price declines. But the British are not the "board of directors" of the global market. And those who expect the collapse of the "hottest" segments of the foreign market will be disappointed. Scandinavians, Dutch and, of course, Russians are very actively buying up property in the south of Europe: in the French Riviera, Cyprus, and the Costa del Sol, where our offices report a very serious turnover."
This opinion is confirmed by Andreas Huloudis, head of the Russian representative office of the Cyprus company Pafilia Property Developers: "The British, indeed, have become much less likely to buy in Cyprus, but there is a noticeable increase in demand from citizens of Russia, as well as Sweden, Norway and other European countries. This growth not only covers the losses from the decline in demand from the British, but the total sales volume even increased compared to last year."
I'm walking on my own!
Compared to foreigners, Russians do not use mortgages abroad too often. According to Tatiana Bulakh, an independent consultant on personal capital management, obtaining a loan involves overcoming many barriers caused not only by organizational and economic, but also political reasons. But in some countries, such as Spain or Cyprus, whose economy depends on the construction sector and, in particular, on the activity of foreign buyers, a mortgage can be provided almost automatically – you only need to prove your financial viability.
However, the popularity of foreign mortgages among Russians is growing year by year. "Almost all of our clients are interested in this opportunity, and about 50% of transactions today involve loans,– says Gennady Tuzov. – I'll make a reservation right away – we are talking about countries where this is possible and easy, and today it is primarily Spain. Loans are available in France and Portugal, but with significant complications."
Due to the global crisis, mortgage conditions have become tougher. Formally, nothing has changed in the registration procedure, but banks are much less willing to give money away. If earlier in Spain it was relatively easy to get a mortgage for 70% of the cost, now you can get only 50% without problems.
"On the one hand, rates and requirements have increased, on the other hand, there is a catastrophic shortage of mortgage consumers in Europe who meet increased requirements," says Tatyana Bulakh. – In such conditions, a buyer from Russia is a real find. The basis for obtaining a mortgage can be a statement of high income, which cannot be verified. We can say that the international mortgage market is flourishing its own mini sub-prime market, designed for borrowers with unconfirmed income, in which we, Russians, have the opportunity to occupy our niche."
Choose – I don't want to
The increase in the volume of supply is explained not only by the credit problems of the owners, sometimes it is a cold calculation of competent investors. For example, the fall of the pound and the dollar against the euro is now making for the British and Americansa profitable sale of property in the euro area – they can make good money on a change in the exchange rate. Russians, of course, do not care about this, but a person with sufficient funds for the entire purchase can find a more profitable option for himself, Gennady Tuzov believes: "The availability of live money has always been a significant factor affecting the profitability of the purchase, if the seller was in a hurry, and now it is becoming especially relevant. A huge number of transactions are carried out by the same British for the purpose of speculation – further resale. And such assets, in theory, should be very mobile."
Due to the urgent need to sell real estate with difficulties in paying off a loan, offers sometimes appear on the market at a very favorable price, much lower than the average market price. "Against the background of a general decrease in consumer activity, sellers sometimes make serious concessions," says Gennady Tuzov. – It is more profitable for them to give the buyer a big discount, but not to bring the matter to a credit auction. However, such real estate needs to be bought very quickly, and this is not very accepted among Russian buyers, who usually buy a house for themselves, that is, they choose for a long time."
Everyone decides for himself
So, the global financial crisis has changed the face of European real estate markets in many ways. Some of them are indeed experiencing significant problems related to falling demand. Although there is no need to talk about the collapse in prices yet, experts cannot come to a consensus on the further scenario of events. Markets in other countries still look more stable, but this very positive fact causes the most fearful investors to be wary.
One thing is certain – it will take some time, and consumer activity in troubled markets will recover, and prices will go up again. However, whether to make a purchase now or wait for the obvious end of the crisis, choose a more stable country or go "on sale" – everyone must decide for themselves, there is no single universal answer.
