Tranio.com analysed major trends in 33 residential property markets and observed high demand, decreased supply, and rising prices in the residential property markets of most European countries and the US in Q3 2016.
Property prices fell only in four of the observed countries: Italy, Greece, Montenegro, and Cyprus. These markets are still in recession.
Data from Trading Economics show that, by 2020, prices can be expected to rise in 25 European markets, as well as in the US market. Prices will trend downwards only in Denmark, Cyprus, Lithuania and Malta, and in three other countries — Slovenia, Croatia and the Czech Republic — prices will remain stable.
Residential property prices and their dynamics in Europe and the US, Q3 2016
Sources: Eurostat, Monstat, Numbeo, Reidin, Trading Economics, Zillow, Bank of Greece
|Country||Price dynamics, Q3 2015—Q3 2016, %||Average price, EUR per sq m||Forecast up to 2020|
SUB1: The hottest markets: Hungary, Latvia and Iceland
The Hungarian property market was the hottest in Europe in Q3 2016. The country’s property market suffered during the 2008-2009 crisis; however, the country’s economic stability relative to the resort markets of Southern Europe means that prices have not dropped as far as Spain’s, for instance. The Hungarian market started its recovery back in 2013. According to Eurostat, in Q3 2016 prices were 11.5% higher than in Q3 2015.
Latvia’s market is also experiencing a boom. In Q3 2016, the country’s properties grew 10.8% in price on the previous year. Prices are growing likely due to low supply. However, in general, the volume of investment into the Latvian market is shrinking. According to a survey from the National Real Estate Development Alliance, investment in newly-built properties amounted to €150M in 2014, €125M in 2015, and about €100M in 2016. The reasons for this decline are bureaucracy and the introduction of new construction standards. Russian nationals, who are the main foreign buyers, reduced their investment in Latvian property when the country raised the threshold for investment for residency from €142,300 to €250,000 in 2014.
The Icelandic market has also demonstrated price growth over 10%. House prices in this country are growing due to supply shortage. In addition, tourism plays a big role: as reported by Reuters, in Iceland the number of vacationers (2.37 million per year) exceeds the number of inhabitants (330,000) seven to one. According to Islandsbanki’s estimates, in 2017 tourist inflow will increase by 35%, further heating the Icelandic property market up.
SUB2: The three pillars: the US, the UK and Germany
The US property market is the world’s largest. Prices for residential property in this country plummeted during the 2008 financial crisis, but by 2012 they were on the mend. In Q3 2016, prices for residential property in the US were 4% lower than in 2007. In certain locations, this difference is even more pronounced; for example, the prices in Miami are 21% lower, and in New York City they are 30% lower. According to Zillow, in Q3 2016, the national average property price rose 5.5% on the previous year, and the growth is likely to continue in the coming years.
Germany, the largest property market in Europe, did not experience a sharp slump in prices after the crisis, unlike many other European countries. The local market is generally characterised by stability and predictability, and residential property prices have been growing continuously since 2008. Between 2011 and 2015, residential property grew in price by 55% in Germany, more specifically, by 65% in Munich and by nearly 100% in Berlin. According to Eurostat, in Q3 2016, the average price nationwide increased by 6.2% on Q3 2015, and Trading Economics forecasts further appreciation of German property. As the prices in Germany have tended to grow and the market has remained stable, many investors continue to choose this country for investing in buy-to-let residential property (flats, micro-apartments, commercial apartment buildings and retirement homes), as well as for creating personal wealth funds.
The second largest European real estate market is the UK. According to Eurostat, property in the UK appreciated 7.2% in Q3 2016. However, prices for residential property in many new projects in London started declining because of the Brexit referendum. For example, according to Savills, between 2011 and 2015 the number of transactions in the newly-built property segment in London exceeded the number of constructed properties approximately two-fold. In autumn 2016, however, as little as 60% of residential units in developing projects were sold, and the number of transactions roughly coincided with the number of properties being commissioned. Therefore, the developers had to compromise and reduce prices. During this time, the property in London was offered for sale at prices 15-25% lower than before the June referendum.
SUB3: The recovering markets: Bulgaria, Spain, Portugal and Ireland
The Bulgarian real estate market has been making an impressive comeback. Property prices in this country plummeted in 2008-2010, followed by a period of stagnation. In 2015-2016, residential property prices began growing. According to Eurostat, in Q3 2016 housing rose 8.8% in price on the previous year. The Bulgarian economy is growing and demand for residential property is increasing, all while construction volume remains low. These conditions create opportunities for property value appreciation.
Spain is one of the countries that the 2008 crisis hurt the most. Prior to 2007, the Spanish property market had been among the “hottest” in Europe, but after the economic downturn, prices for homes and flats fell steadily until 2015, when the market bottomed out. According to Eurostat, in Q3 2016 prices went 4% up on the previous year, and Trading Economics expects them to grow up through at least 2020. The market is at the early recovery stage and, therefore, still has great price growth potential; Spain offers good speculative investment opportunities. Notably, 2016-2017 will be favourable for making money on buying residential property for renovation and resale.
Unlike the other countries of Southern Europe, Portugal passed through the 2008-2009 crisis with the fewest losses. Local residential property prices fell by 17% between May 2010 (the peak of the cycle) and March 2013 (the bottom). In contrast, the difference between the peak and the bottom prices in Greece and Spain was about 40%. In the most popular Portuguese real estate markets, Lisbon and the Algarve, the decline was more noticeable: between 2010 and 2013 the residential property became 21% cheaper. As of September 2016, the residential property prices in Portugal are 9.7% higher than during the bottom period and 8.6% lower than their peak value. This means that the market is approximately halfway through the cycle, and prices still have a potential to grow.
The Irish market was strongly affected by the consequences of the 2008 crisis similarly to the Spanish market. According to the country’s Central Statistics Office, the prices in Ireland are still 30.4% lower relative to their 2007 peak value, but they already exceed the 2013 minimum by 41.6%. Property prices have been rising rapidly in all cities, including Galway, Dublin, Cork, Limerick and others. Demand continues to grow, and the supply continues to shrink.
SUB4: The struggling markets: Italy, Greece, Cyprus and Montenegro
Italian property prices have been declining since 2008, and prices in the country continue decreasing, though this decline is slowing down. According to Eurostat, in Q3 2016 local residential property prices fell 0.9% on the same period in 2015. Trading Economics expects the Italian market to begin its recovery soon. This means that now, when the prices are approaching their minimum level, the moment is right to enter the market. Many foreign investors have already taken note of this trend and began actively closing transactions in Italy. Italian property has become most popular among the citizens of the UK, Germany, the US and France.
Greek property now costs 42.5% less than in 2008, and prices keep falling. According to the Bank of Greece, the country’s residential property became 10.8% cheaper in 2013, 7.5% cheaper in 2014, 5.0% cheaper in 2015, and just 1.5% cheaper in 2016 up to the third quarter. Trading Economics expects a prompt market recovery, which should make it beneficial to buy residential property in Greece. At the same time, the country still has many economic issues unsolved, among them the EU’s highest unemployment rate (23%).
In Cyprus, the problem is the same: the rate of unemployment is high. However, it has been falling recently and, according to Trading Economics forecasts, will constitute 11% by the end of 2017 versus the 15.5% in 2015, which can slightly alleviate the local residential property market situation. Cyprus showed the signs of recovery in 2015, but in Q3 2016 there was another decline: according to Eurostat, the island´s residential property became 3.3% cheaper versus the same period in 2015, and the Trading Economics forecast is negative. In order to stimulate the Cypriot residential property market and attract foreign investors, the country´s authorities lowered the minimum amount to invest for citizenship under immigration programme from €2.5M to €2M in autumn 2016. Today, Cyprus offers the most beneficial program to obtain EU citizenship: the procedure takes six months, and all the investor’s family members become nationals.
Of the 33 countries considered in the Tranio.com survey, in Q3 2016 prices fell the most in Montenegro: by 4.9% year-on-year (according to Monstat, the Statistical Office of Montenegro). However, these data only refer to the newly-built property market. According to forecasts by Trading Economics, prices may rise by 2020. The main driver of the Montenegrin market is tourism. According to Monstat, between 2011 and 2015 this segment grew by 6.4% per annum, the number of tourists increased by 12.9% in 2015, and by another 3.8% from January to July 2016. Foreign demand for Montenegrin property will also be propelled by new flights to European cities (e.g. Barcelona, Brussels, London, Milan, Stockholm and Oslo) hosted by Podgorica International Airport.
For property investment in 2017, experts at Tranio.com recommend:
— Germany — to those choosing low-risk investment in a stable rental business
— Spain — to those aiming for high-risk, high-yield investment (redevelopment).
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Yulia Kozhevnikova, real estate expert at Tranio.com, overseas real estate broker