Over the last few years we have seen a dramatic decline in the value of European property markets with only really the UK showing any signs of life of late. There have been catastrophic collapses in Spain, Portugal and Greece to name but three and investors seem to be ignoring European property at the moment. When you also take a look at the fact that the European economy as a whole is still struggling, the euro is not yet out of the woods and government debt across the European Union continues to grow, why would you even contemplate looking at European property?
At this moment in time European property is friendless, showing no signs of life and governments such as those in Portugal and Spain are being forced to “bribe” investors with promises of residency visas. So, will things get worse in Europe before they get better?
Darkest before the dawn
It would be foolish to suggest that the European property market is anywhere near recovering but such has been the backlash in the media and amongst investors that many European property markets may well have been oversold. That is not to say they will bounce back in the short to medium term or we will see a return to former levels in the foreseeable future but perhaps, just perhaps, there is value emerging?
Quote from PropertyForum.com : “Residential property sales are continuing to fall in Spain and are now just a third of what they were in 2007 before the economic downturn kicked in, according to figures from notaires.”
It is human nature to go over the top when things are looking good and to go over the top when things are looking bad. Sentiment can play a massive role in any property market, and indeed any investment market, overdoing the upside and overdoing the downside compared to what investors would perceive to be fair market movements.
If you take a step back from the situation, ignore the short to medium term problems within Europe, the fact that the German government is effectively bankrolling the rest of Europe, property will come back into favour at some point. If you’re looking towards European property it may well be worth investing a relatively small percentage of your funds, either directly or indirectly, and possibly buying more exposure on the way down or increasing your exposure on the way up – but be selective!
One factor which is playing into the hands of some investors is that many banks across Europe have been left with a significant amount of property after customers fell behind on their mortgages and fell into default. When you also take into account the difficult financial situation many banks are faced with, it is common knowledge that banks in Spain and Portugal, for example, are looking to dump their default property portfolios literally at any price.
What happens when the property overhang disappears?
While we have highlighted banks in Spain and Portugal looking to rid themselves of default property portfolios, there are many similar situations in other areas of Europe. No serious investor would invest all of their European property funding at this moment in time if they were aware of large-scale selling to come. However, the fact is that once this sale of unwanted property is over it is likely that markets will respond positively and we could see a short-term bounce.
Perhaps building up a small exposure now would cover you in case you missed the expected bounce in the short to medium term and leave you to average up as the property market in Europe finally recovers?