When you bear in mind the ongoing issues surrounding the European economy it is no surprise to learn that a number of UK property investors are looking towards the likes of France, Spain and Portugal. The strong pound is also a major influence on many real estate investors although bearing in mind the forthcoming UK referendum on Europe and a probable change in the worldwide interest rate environment, this year could be a relatively volatile year for currencies. So, is now the time to buy European property and how can you protect yourself from currency fluctuations?
European property prices
Markets such as France, Spain and Portugal have been hit relatively hard yet still remain very popular with UK property investors. French property prices are still 10% below their 2011 values, Spain is struggling at 35% below the 2008 peak and the Portuguese situation is even worse. There is also talk of renewed interest in places such as Bulgaria and Romania which have been dragged lower by the euro debacle.
On numerous occasions we have covered the dark cloud of repossessed properties across the likes of Spain and Portugal with many European banks still forced sellers. The last few months have seen some of the largest property investment companies in the world hoovering up repossessed properties with banks more than happy to jettison these troublesome investments. Opinion is divided as to whether the European property market has turned but each repossessed property taken away from the dark cloud overhanging Europe is a move in the right direction.
Volatile exchange rates
If you look back over the last decade you will see that exchange rates have been extremely volatile across the world due to ongoing economic challenges and more localised issues. There are ways and means to protect yourself from exchange-rate volatility using “forward contracts” although advice should be taken on these delicate matters.
As many investors have seen in years gone by, currency exchange rates can very quickly negate any positive move in house prices in their local currency. It is therefore vital, if you’re looking overseas for your next property investment, that you also consider the currency markets. The economic measures introduced by governments around the world are tailored directly to their local markets – economies are recovering at very different speeds. This again will inject yet more volatility and uncertainty into currency markets.
Despite the fact there are various issues to take into consideration when looking towards overseas real estate investment there is no doubt that relative to places such as the UK, property prices in Spain, Portugal and France look attractive. Indeed recent currency movements could be seen as the “cherry on the cake” which has tempted many UK investors to look to their European counterparts.
While on a relative basis many European property markets look good value against the UK, there is no certainty we will see any sustained recovery across Europe in the short term. There are still long-term questions to be answered about the Euro, indeed the structure of Europe could change and the forthcoming UK referendum on European membership has caused some concern. Interesting markets but certainly many challenges for any investor looking to pick up value property.