The economic crisis has done its job: people have stopped spending money on foreign real estate
Grab a bargain – prices have dropped!
Every year, Russians alone spent on average more than one billion euros on buying real estate abroad. For example, since 2001, Russians have invested more than 285 million euros in the resorts of Montenegro alone, of which 80% is real estate investment. For several years, our compatriots have been driving demand for square meters in many countries. The economic crisis has done its job: people stopped spending their own money on foreign real estate first of all. Many markets came to a standstill as a result, and those where credit systems also stalled simply collapsed.
According to experts, Spain suffered the most. Until recently, foreigners, and not least Russians, bought houses and apartments there using mortgages. It was very cheap and easy. Now the good times are over. "The sharp drop in lending was caused by the fact that Spanish banks are unable to raise funds on international financial markets," says Julia Tishkova, consultant on foreign real estate at AVC Real Estate. "Spanish credit institutions will tighten mortgage lending restrictions, narrowing criteria and raising fees."
As a result, many properties are being offered at huge discounts. For example, apartments on the Costa Blanca coast are being sold on average at 700 euros per square meter. "The Spanish real estate market also includes high-quality housing, the prices of which are not falling," says Natalia Zavalishina, general director of Miel Distant Property Management. "The cost of a villa in a resort area is about 4,500 euros per square meter."
Foreign real estate in another European resort, Montenegro, is also popular among our compatriots. Despite the optimistic mood of local real estate sellers, prices on the Adriatic coast have become much 'kinder'. At the peak of sales last year, a square meter here cost from 4,000 to 5,000 euros, although such a 'price tag' is more appropriate for the luxurious French Riviera or the trendy Italian Liguria. Today, there are offers at 2,500 euros per square meter.
Bulgaria is falling just as dynamically. In spring 2008, right after the crisis hit the UK, the British, who made up the lion's share of buyers, started getting rid of real estate in this country. As a result, the cost per square meter dropped from 1,500 to 700 euros. Analysts say Bulgaria is a country of seasonal demand, which usually increases from May to October, so prices should creep up again. In the vicinity of Varna and the Golden Sands resort, new villas are being sold at prices from 2,200 to 2,700 per square meter, and an apartment in Varna will cost from 1,200 euros per square meter.
In the last couple of years, activity of our buyers in Turkey was recorded. However, the market here has hardly fallen. "On average, 'across the board' a square meter costs about $800 – at last year's price level. For a solid house on the Aegean coast, sellers ask €120,000. Experts note that over the past five years, the Turkish economy, which recovered from the 2001 crisis, has shown good growth, and real estate prices are rising too."
According to foreign real estate market specialists, the least affected by the crisis were France (more precisely, the French Riviera) and Switzerland. Purchases here are usually long-term investments.
Burned out?
Citizens of the former Soviet Union made many purchases abroad for investment purposes. So, have they all burned out? After all, if in Spain, as analysts say, real estate prices fell by 15%, then investors who are forced to sell properties now for one reason or another go into the red by about 20% taking into account costs. The outsiders, apparently, can also include those who bought real estate in Latvia for investment. "Here the market has fallen by 21%, and today only point sales remain," believe at Miel DPM.
But analysts urge not to rush to conclusions. "As for Spain, sooner or later the decline in the real estate market will be replaced by a rise, you just need to be patient," say specialists at Miel DPM. "Bulgaria and Turkey have great prospects, where a relatively young real estate market is just beginning to develop."
The same applies to Montenegro. "This season the region has great potential in terms of increasing tourist traffic," says Vyacheslav Leibman, head of the Astra Montenegro project launching on the market in May, "the country can lure tourists who are planning to go to more expensive European countries."
Another promising market, according to experts, is Turkey. Here, after a period of calm, active growth will continue. According to IntermarkSavills analysts, by the end of 2009, housing prices in Turkey will rise by 15-20%.
Crises, experts hint, pass, but houses and apartments still remain – no more reliable way to protect capital has yet been invented. "Even if the price of a property has fallen by 25%, it does not mean that the owner has already lost 25%," reassures investors Igor Indriksons, director of the international investment department at IntermarkSavills. "He will lose them only when the property owner is forced to sell it to pay off debts."
Those who have already invested in foreign real estate are more or less clear: if they do not rush to sell today when the market is at the bottom, losses can be avoided. But is it worth buying when prices have fallen, discounts are attractive, and you have free thousands of euros under your mattress?
The Long Meter
Experts answer: only those who are ready for this investment to be a long-term one should buy. Today, quick money will be replaced by a long-term trend that allows capital growth through rent and stretched-out real estate price increases. At the same time, analysts advise potential buyers to be careful when choosing real estate in these difficult times.
On one hand, one must remember that the price drop in many regions is not over yet. According to experts, the favorable period for purchases in Spain will last at least about another six months, when one can buy a decent-quality villa for €100,000. On the other hand, discounts often hide pitfalls. An investor should look not only at discounts but at the potential for future real estate growth. In the pursuit of cheapness, people forget about the quality of the property, its location, and the availability of infrastructure. Igor Indriksons is confident that it is best to find a promising, high-quality property in every respect and then try to get a discount on it when purchasing.
It is known that the Russian mentality assumes getting everything immediately and quickly. "Long-term investments are a great luxury," say new Russian businessmen, "where are we... and where is tomorrow... We need to live now." Now the approach will have to change. Those wishing to invest in real estate will have to learn to make medium-term and long-term investments.
One does not have to be an expert to understand that buying housing for a short-term period will most likely result in losses. And if a deal has been made, it is better to wait until the property appreciates. Or rent the property to receive dividends despite price fluctuations. Of course, it would be nice if rental income were complemented by an increase in price per square meter, but in a crisis, that would be too good to be true.