While the 2008 worldwide economic crash, as a consequence of the US mortgage crisis, seems so long ago the consequences of this are still being felt today. While the likes of the UK and the US have seen a recovery in property prices the situation in Europe is very different. It is becoming evident that the worldwide economic collapse exposed serious flaws in the European Union and the ailing euro currency. This has had a massive impact upon confidence going forward and with Europe as a whole struggling to regain economic growth momentum European real estate has struggled.
However, there are some rays of sunshine on the horizon which may indicate a short to medium term recovery could be on the cards.
Institutional investors looking towards Europe
Some of the larger pension funds have been looking towards the European real estate market where many believe there are some good long-term growth opportunities. If we look towards the Spanish and Portuguese markets in particular there is still a significant overhang of unwanted properties. Many of these were inherited by European banks when their customers ran into financial trouble and were unable to keep up their loan repayments. It is common knowledge that many European banks have been trying to jettison their unwanted property assets at “any price” and until recently it seemed they may have to wait some time.
Slowly but surely we have seen institutional investors cherry picking assets in certain areas of Europe which they see as having potential for long-term growth. This is beginning to take some pressure off local property markets and while economic growth is limited to say the least perhaps this has also bottomed out?
It would be misleading to suggest that investor sentiment has turned positive on Europe but there is also no doubt it has improved of late. The European Central Bank still has a number of fiscal support policies in place amid concerns that any short term recovery may be fragile and require assistance. At some point these fiscal support policies will be withdrawn but as we saw in the US, with an increase in US base rates, this can indicate a change in direction for the real estate market.
One of the major problems regarding European real estate is the fact that many people are still concerned about the long-term future of the euro currency. It is difficult to see the currency falling by the wayside, and members returning to their original currencies, but there does need to be a more focused approach to economic cooperation. In years gone by the European Union has been guilty of allowing “suspect” economic figures to be used by member states with Greece attracting significant suspicion in light of its recent collapse.
Confidence for 2016
While the European real estate market may not exactly fly in 2016 hopefully this will be a period of consolidation and a return to long-term growth. As and when the grey clouds of unwanted real estate stock disappear from bank balance sheets we will then see exactly what the future holds. At the end of the day, if you were aware of an overhang of unwanted property (as we all are) would you not wait until this overhang was nearly cleared?
We can only hope that economic operation across the European Union is solidified in 2016 and any weaknesses are addressed sooner rather than later. When you bear in mind that the worldwide economic collapse came about in 2008 and the European real estate market is still suffering, while other many countries show at least a partial recovery, it is fair to conclude much of the problem is European related.