Which European Countries will still be attractive to buyers post-COVID-19?
In these unprecedented times we are hearing daily updates about the struggles of our European neighbours with Covid-19 and how they are each dealing with the virus. This is giving many of us a totally different insight into these countries, their practices, resolve and people – and they may well be doing the same with us.
Here, Property Consultant and AIPP Advisory Board, member Louise Reynolds, give us her insights…
“We regularly hear about hospital admissions and infection rates across different countries in Europe. But when it comes to determining which countries will still be attractive for holiday home buyers, comparisons are in short supply.
By way of a quick guide, I have brought together five of the bigger European countries to help see which countries will be the winners for property buyers.
France – a favourite for lifestyle home buyers
The decline in the French economy is set to be of a similar scale to the second quarter of 1968, when gross domestic product – a measure of the economy – fell 5.3 per cent because of the impact of a student-led protest movement.
The property market in France is highly regulated and prices are, on the whole, more stable than some other European countries. Bigger cities and places which attract international holiday makers have tended to see more buoyant prices in the recent past, like Paris, international ski resorts like Chamonix and holiday home hot spots like the Côte d’Azur. Prices in these sought-after places have further to fall, so if unemployment hits other countries badly, there are likely to be less international buyers and prices could fall.
Italy – charms property buyers
Italy’s economy – measured by gross domestic product (GDP) – is expected to fall by 6% in 2020, with thousands of its 60 million population seeking state-backed income support schemes.
Italy is one country that has been vocal – along with Spain – about EU-wide financial support, given they have been harder hit than the Northern European countries. The current offer of a €500bn economic package using the region’s European Stability Mechanism bailout fund is eyed with suspicion lest stringent repayment conditions might be levied. This could cause rifts in Italy, where there are still recent memories of Greece and how it had to make onerous payments to the EU for financial assistance.
Property prices in tourist hot spots like the Amalfi coast or Tuscany or its Lakes, might come under pressure.
Germany – the economic stalwart of Europe
Germany’s economy is predicted to shrink by almost 10 per cent in the three months to June – the sharpest decline since quarterly national accounts began in 1970 and double the size of the biggest drop in the 2008 financial crisis.
Both Germany and France showed weaker economies pre-Covid-19. Germany narrowly avoided a recession in 2019 as its manufacturing industry was hit by the US-China trade war. France’s economy contracted at the end of 2019 as a result of widespread strikes and protests.
Property in Germany’s main cities like Berlin have performed well for investors over the last few years, particularly for non-domestic investors looking for an alternative stable housing market in the lead up to Brexit. Property prices in these cities may well cool as international buyers take stock.
UK – a benchmark country as well as a favourite for expat property investors
The UK’s economy is forecast to decline by just over 5%, slightly more than Germany and France on an annual basis.
During the credit crisis UK property prices declined 19% from a peak in Sept 2007 to a trough in March 2009. UK government stimulus now is more than 10x the stimulus package in 2008.
On prices – Savills predicts a fall of between 5 and 10 per cent in the short term, with prices cushioned by low interest rates and lenders’ flexibility on arrears, reducing forced sales. The longer- term impact on prices is likely to depend heavily on economic factors: growth, earnings and unemployment.
For you British holiday home buyers abroad, affordability of buying a home abroad will depend partly on how employment holds up and how you planned to finance your purchase. If the value of your home reduces that might decrease your potential to release funds for buying a holiday home in Continental Europe.
Spain – a favourite sunshine spot for Brits
Spain’s economy is possibly set to suffer the most from Coronavirus crisis. With estimates between a 10 per cent and a 15.5 per cent decline in its economy in 2020, it does not have huge coffers of money to boost the economy.
Spain’s economy is particularly vulnerable, due to the high proportion of people on temporary contracts – the highest level in the EU – which has already declined by 17 per cent, compared with just a 2 per cent fall in permanently employed staff. The reliance on the service sector, including tourism, which has been knocked badly, and the high proportion of small and medium-sized businesses.
Spain had just got itself in a positive position following the 2008 credit crunch, before Coronavirus hit. It is likely to take Spain slightly longer to recover than some of its Northern European neighbours.
By the end of March Spain had instigated discretionary fiscal measures and guarantees worth around 12 per cent of GDP, compared to 18 per cent in the UK, 23 per cent in France and closer to 60 per cent in Germany.
Southern European countries might struggle more than the Northern ones to recover. But the strength of government financial packages in each country is an indication of who will be first out of the recovery blocks for property buyers.
Many of the property markets in Europe are not only dependent on domestic home-buying demand, but also international buyers. Given most countries around the world have been affected, it makes sense to sanity-check pricing in your area of interest, particularly if overseas buyers make up a significant proportion of home-owners.
Source: Mainly FT, Bloomberg, IMF, Land Registry
All contents Copyright © 2020 Louise Reynolds
Author: Louise Reynolds runs the European property agency Property Venture® and is an advisory Board Member of the AIPP. She helps time-strapped entrepreneurs and expats who don’t have the time, local presence or gaps in their know-how to buy property in Europe in the right way.
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