Firstly, although the fall in real estate prices is a plus for some and a minus for others, those who simply want to buy a house, taking advantage of lower prices, and do not intend to make money on the resale of an object in a few years, may suffer from the crisis, just because the developer company, dependent on loans, it can freeze construction.
Secondly, it should be understood that properties worth from 400,000 to 1 million euros, which account for most of the loans, are more affected by the crisis than luxury and, conversely, inexpensive real estate. This is due to the fact that when buying a medium-priced home, a mortgage is issued most often. Moreover, a decrease in demand and a high degree of risk characterize not only a specific price segment in a particular country, but also entire directions.
Thirdly, it should be borne in mind that the crisis is taking place in different ways in each country: in some states, the real estate market has already suffered, undermining the entire economy, in others there have been almost no changes. "The biggest damage was caused to the real estate markets of those countries that are deeply integrated into the global credit and financial system," says Oleg Shevelev, financial analyst at Rich Daddy. – Since the recognition of the US dollar as the world reserve currency in 1944 and until recently, the credit and financial system of the United States has been the backbone of global financial policy. Accordingly, countries with efficient commodity-producing economies, focused primarily on domestic consumption, were less affected by the crisis, as well as countries with a conservative, closed type of banking system."
Loosening the foundations
For many years, there has been an opinion that foreign real estate is a win–win option for investments with any budget and return on investment period. If there is not much money and you want to return it faster, apartments in new resort complexes in emerging markets are suitable. If the buyer expects to invest a lot of money and for a long time, then he can safely go to the "old" Europe. The United Kingdom was considered the most reliable and to some extent iconic European market,
but it was the market of the Foggy Albion that swayed one of the first.
The average cost of real estate in Britain stopped growing two years ago. A little later, the fall began. According to Nationwide, in October 2008, the average house price in Britain was 189,000 euros, which is 14.6% less than a year ago, so the cost decreased by an average of 1.5% per month. London held out longer than others, but it gradually began to lose ground.
The Government of the country does not deny the complexity of the situation. So, Matthew Oakeshott, a representative of the Ministry of Finance of the United Kingdom, believes that the players of the British real estate market are building their strategies for the coming year, taking into account the most pessimistic forecasts.
Richard Mohr, a mortgage broker working in London, assures that now the only way to quickly sell a property is to give a good discount: "Buyers today can find great options, especially if they have the entire amount and do not intend to apply for a loan. Those who need a mortgage are unlikely to be able to take advantage of the situation, as credit conditions have noticeably tightened."
Since Russians who rely on London are usually ready to pay immediately upon concluding a deal, the crisis may play in their favor. In addition, the luxury real estate segment remains stable: affluent buyers continue to purchase housing, and demand for it does not decrease. Therefore, the answer to the question of whether it is possible to buy a house in London now is: you can ... if you are not interested in the financial result.
Spain in free fall
The Spanish market, as one of the most dependent on lending, suffered maximum losses and dragged down the economy of the whole country.
Since 1997, prices in Spain have been growing by 12-15% per year, which is a very high indicator by Western standards, and many transactions were concluded for the purpose of resale. The boom ended in 2007, when, with an inflation rate of 4.6%, the cost of housing increased by only 4%, and in January 2008, according to the National Institute of Statistics, prices were already 27% lower than in January 2007.
According to Spanish Minister of Economy and Finance Miguel Angel Martinez, the Spanish market will not begin to recover until 2012, although even now it remains relatively expensive: it is not easy to find a good option with a budget of up to 100,000 euros.
Oleg Shevelev notes: "Today, the main risk when buying real estate in Spain is the freezing of construction. Therefore, when choosing a house, the buyer needs to clarify for himself the financial condition of the developer company: whether the land plot on which the building is being built has been mortgaged, and how stable the financing of this facility is." Thus, it is risky to purchase objects under construction, especially at the zero stage, in Spain, because if a development company is heavily dependent on loans, there is a high chance that construction will be frozen.
Resistant tin... Germany
Relatively closed markets in terms of lending have been the least affected by the global downturn. One example of good resistance to the crisis, according to Oleg Shevelev, is the German real estate market. At the end of the last century, it has already experienced a significant rise, but over the past decade its growth has been almost zero, as evidenced by a study of the markets of 150 German cities conducted by the German Real Estate Association. Now the market decline has also turned out to be zero. The German financial sector also proved to be more resistant, since in this country the stroysbercass system operates much more widely than the mortgage one, and German banks practically did not gamble with high-risk American securities.
Germany is a good example of how the financial policy of the government of a country in the center of Europe is able to isolate the real estate market from global trends, both positive and negative.
In 1991, six months after the unification of Germany, the government passed the Fordergebietsgesetz law, aimed at strengthening the economy of the eastern part of the country. According to this law, during the construction or reconstruction of buildings in the east, the invested amount was deducted from tax fees for 10 years. Julian Power, director of Berlin Capital Investments, assesses the conditions prevailing at that time as a win-win, since all expenses were eventually reimbursed by the state. All this led to a massive boom (prices increased by 70% in 7-8 years), which led to an oversupply. Starting in 1998, the market began to cool down rapidly, and tax incentives were abolished. As a result, prices froze over the next ten years, that is, if we take into account inflation, they actually began to decline.
Quiet and smooth
Bulgaria has a different reason than Germany not to be afraid of a liquidity crisis. The main role in the global market today is played by buyers with a fairly modest budget: 50,000–100,000, maximum 200,000 euros - as a result, cheaper destinations are in great demand. Bulgaria has become the main favorite in Russia, which can be judged both by the estimates of realtors and by the number of Bulgarian stands at exhibitions and search engine queries.
According to Vladislav Kharitonov, sales director of the Moscow office of Bulgarian Property Advisors, in addition to the relatively low cost of Bulgarian real estate itself, the key factor for Russians is the low cost of living, as well as a small population density and lack of water problems. The expert adds that compatriots are also attracted by the proximity of cultures and the fact that Bulgaria is a member of the European Union.
Unlike the British, who invested in the country a decade ago and are now actively selling real estate, profiting from the rising cost, Russians have recently started buying houses in Bulgaria – mainly for their own holidays, not for profit.
Of course, Bulgaria also felt some decline in demand, however, according to Oleg Shevelev, the country's construction industry suffered much less than, for example, Spain, because it never depended heavily on mortgages, and the mortgage lending system itself began to develop quite late and was not based on high-risk subprime schemes (granting loans to persons with short or unreliable credit history), as in the USA.
Is it more or less safe?
Experts are very careful to make their assumptions about which countries' real estate markets can be considered the most secure today. "The high level of global integration minimizes even the theoretical possibility of the existence of some absolutely safe investment footholds," Oleg Shevelev believes. – Rather, we can say that there are unique real estate objects in a particular market that will be strongholds of stability. Only projects can be relatively safe, but not countries with a steady flow of funding and a high level of management."
However, often those areas where real estate has a good growth potentialthe cost is not quite suitable for recreation. Vladislav Kharitonov calls Panama an attractive country for investment, which is unlikely to be able to fly regularly to spend a short vacation or holidays. This Central American country has the second largest free economic zone after Hong Kong, the state ranks second in the world in terms of hotel occupancy, so it is very profitable to buy apartments for rent there.
If there is money, there are discounts
Traditionally, most foreigners have bought foreign real estate by taking loans from their national banks secured by their main home, whereas many Russians prefer to purchase a second home for the amount already available and, due to the tightening of credit conditions, are currently in a winning position. "Those buyers who have the full amount now have the opportunity to get a good discount in a number of areas," says Tatiana Bulakh, an independent consultant on personal capital management, a full member of ITPA.
The expert adds that not only discounts should be taken into account, but also the real consumer qualities of the purchased object: "The main advantage is a strategically advantageous location. It is now much easier for Russians than before the crisis to buy real estate abroad on better terms. We must use this, not forgetting that it still makes sense to buy high-quality, not just cheap objects."
Think for yourself, decide for yourself
Gennady Tuzov, managing director of EstateService, urges to abandon the illusion that a widespread sale has begun abroad: price correction is not observed in all segments. Rather, we are talking about a significant decrease in consumer activity and a shift of attention to other areas – for example, South America and China.
It is impossible to give an exact recipe for how not to lose in today's situation, however, Vladislav Kharitonov recalls: "We must remember that the crisis will end sooner or later and a supply vacuum will occur, since developers will not have time to complete the facilities that are currently suspended. Today's buyers can play on this, but it is quite difficult to guess what awaits this or that object in the near future."
Oleg Shevelev, in turn, recommends following the general rules: "When buying foreign real estate, first of all it is necessary to determine the goals and financial capabilities, and the crisis does not change anything here. The first option is for your own use, in this case you need to proceed from your personal preferences. The second option is investment, in which case the purchase decision should be based only on the criteria of investment attractiveness. However, in real life, decisions of this kind are made on the basis of mixing both approaches in varying proportions. Unless during a crisis, "emotional" motives take over, because it is difficult to count on a quick resale with a profit."
