Interestingly, according to Deutsche Bank Research, a significant share of European markets developed in sync with the US market. The correlation was especially high in Britain, the Netherlands, Denmark, Ireland, Spain, France, and Sweden. Yet, there are still places where housing continues to appreciate or has growth potential.
On the decline
As Expert writes, the decline in the US real estate market continues. Not long ago, experts were cheering: "A month or two – and everything will stabilize." Now even optimists are not ready to assert that the market will start to recover before the summer of 2009. The strongest price declines over the past year occurred precisely in those cities where real estate had appreciated most actively a few years ago. According to the Case & Shiller index, housing in Los Angeles fell by 26% year-on-year, in Las Vegas by 30%, and in Miami by 28%. Sales of single-family homes in the country dropped by 35%.
New York also became cheaper, albeit not by much – by 7%. Few expected this decline. There was a theory that New York, as the headquarters of the world's largest corporations and the main financial center of the planet, had ceased to be just a city and had reached another level, called a global city. This gave hope that the crisis would bypass it. It turned out that the connection with the overall US situation still exists. Now analysts fearfully await what awaits the city next in connection with the layoff of 65,000 Wall Street employees.
Since October 2007, prices have been falling in the UK. According to the country's largest mortgage company, Nationwide Building Society, the price of an average home fell by 12.4% year-on-year. Independent experts say prices have fallen by at least 20-30%. Realtors and developers are alarmed that the official rate of decline is constantly increasing: in September it reached 1.7%. The average house price in England in September 2008 reached £161,000. Experts expect the market to start recovering no earlier than 2010.
In Spain, according to the National Institute of Statistics for the second quarter of 2008, the cost of housing on the secondary market fell by 5.8%. The published figures drew scathing criticism from independent experts. Essentially, the state body was accused of manipulating figures to calm the public and investors. A number of large Spanish developers have already gone bankrupt, and real estate companies are actively closing branches.
By the way, about indices. In Europe and the US, they are more objective than in Russia (if only because they are calculated based on actual transactions, not asking prices), but they are far from perfect. They also incorporate certain regulatory elements to "help" avoid panic in the market. That is, in reality, the price decline is much larger than the indices suggest.
So, recently an acquaintance returned from England, where his wife lives, and said: "The owners of the apartment in Fulham that she rents have been trying to sell it for about a year. For a 60-square-meter apartment with a private entrance and a small garden, they were asking £700,000 at the time. Now they have come down to £450,000, but even at this price they cannot find a buyer." That is, in this case, the price has fallen by 40%, and this is not yet the bottom.
The absolute world leader in housing price decline is Latvia. Over the year, housing prices there fell by 33.8%. This figure is cited by the international real estate agency Global Property Guide. The Latvians themselves estimate the decline more modestly – at 21%, which, however, also guarantees first place on the planet. The history of the local market is simple: the massive development of mortgages quickly drove up prices (+60% in 2006). However, the local market is small, and speculators overestimated its capacity. In 2008, when they wanted to lock in profits, it turned out there were no buyers. The market began to fall, but even reduced prices cannot attract buyers – the bottom is still not in sight.
Continue to rise
There are countries on the planet where the global crisis has not yet reached and real estate prices there continue to rise. There are about a dozen such countries, if we exclude purely local markets like African ones. First of all, these are Asian states. The leader is China: in Shanghai, prices rose by 27% year-on-year. Double-digit growth rates were seen in Hong Kong (19%) and Singapore (11%). So, in search of investment opportunities over the past year, one had to go not to the west, to Europe, but rather to the east.
Bulgaria continues to show high growth rates: over the year, housing here has risen in price by 15% (data as of June 2008). Local resort real estate, despite several years of price increases, still remains inexpensive, especially compared to other European resorts – France, Spain, Italy. This attracts buyers, primarily from Russia and England. However, in the case of Bulgaria, the issue of trust in indices is particularly acute. Local realtors say that the market is not as good as it seems. There is information that many Western investors, particularly the British, tried to exit the market at the peak in the fall, but so far, due to sharply decreased demand, they have not been able to do so.
Over the past twenty months, an unusual real estate boom has been observed in Cyprus. Average prices have risen by more than 7% over the year. The growth driver was a decrease in mortgage rates (to 6% per annum) and a sharp increase in demand for high-end houses and apartments from foreigners. The main investment area is Western Cyprus, where the British are actively buying real estate.
Unexpectedly, Slovakia became one of the leaders in real estate price growth. The country has seen a high GDP growth rate for five years, exceeding 10% in 2007. The rising prosperity of Slovaks is combined with limited housing supply, due to the fact that in the first ten post-socialist years, virtually nothing was built in the country.
The countries of the Persian Gulf are quite interesting for investment. The construction boom there has a solid base in the form of a powerful influx of petrodollars. However, regarding Dubai – the most open market for foreign investors and the fastest-growing in recent years – many experts have doubts. This emirate has too many megaprojects, too many construction sites, so there is a risk of oversaturation of the real estate market.
Recently, countries in Latin America have been attracting increasing interest from investors. Their economies are growing actively, and many retirees from the US are moving there for permanent residence. Local real estate markets are attractive in terms of prices: even in most capitals, a square meter costs less than $1,000. The most expensive city in Latin America is Buenos Aires (average housing price – $1,800 per square meter), and Brazil is considered the most attractive country for foreign investment: the country's economy is developing rapidly, and its GDP is approaching that of Russia.