Market In Focus: Europe

Last year, the Eurozone experienced its highest volume of transactions since 2007, representing a shift in sentiment among investors as Europe became blinded in a new light, where the word ‘crisis’ could hardly be glimpsed.

Market In Focus: Europe

The Eurozone has reached a new milestone in its recovery process

The total investment volume in the Eurozone last year topped €140bn, jumping 22% from the previous year, as 2013 became somewhat of a milestone in the Eurozone recovery process.

More importantly, this recovery is still strengthening as the rebound of the market continues to gather speed. This is shown by research firm Markit, who stated in their July survey of purchasing managers that its headline index hit 54.0, up from 52.8 in June, and well above the magic 50 mark which represents growth in the market.

However, this continuing growth cannot be attributed to every country that falls under the ‘Eurozone’ umbrella. Despite the shared currency, countries across the market are growing and slowing at completely different levels; Germany and the UK are the key economic powerhouses driving the Eurozone forward, while Greece is on the opposite end of the cycle battling to turn around their misfortune; meaning that wealth is in no way equally shared.

Therefore, we have decided to pick out three countries that are in different stages of recovery, following the ‘Eurozone crisis’ to see how their property markets are faring. First, we will look at, Germany, the engine powering the Eurozone recovery, secondly, Spain, who may be springing an unlikely recovery, and finally, Turkey, where a revival in tourism could be sparking a new era of boom in the property market.

Germany

When Germany lifted the world cup in Brazil, it hardly seemed possible that their performance off the field could match it on the field, yet, statistics from Germany’s economy and property market show that they never let their performance dip.

A significant lack of supply is fuelling Germany’s thriving property market, as the limited number of opportunities means that rooms are taken up as soon as they hit the market. Since the last census in 2011 Germany’s population has swelled to reach nearly 83 million; yet, house-building, particularly in prime areas, remains chronically low, causing rents to surge.

The tide is slowly starting to turn however, as the potential of this surge in rents has started to be realised by buy-to-let investors and developers, who have begun constructing scores of new developments. New-build activity has increased by 50% in the top locations compared to 2011; but this does not mean demand is lagging, as the shortfall still remains drastic with the number of completions woefully inadequate at just three housing units to 1000 people.

Another popular feature of this market is that renting is truly a way of life in Germany. Renters actually outnumber home-owners in the country, with just 41% of the population owning their own home. This means renting is common place, ensuring investors of long-term contracts with tenants who they can build trust with over a sustained period of time, as they are unlikely to be looking to acquire a property of their own. Additionally, it also means there is more demand as there are simply more renters after each and every apartment, due to the fact home ownership is so low.

This mix of positive market factors has caused prices to soar in Germany. Last year, the average sale price of all residential units rose 16% year-on-year to reach €62,500. However, despite these price rises, investors are now keener than ever to acquire German property with €6.8 billion worth of property transactions having already been made in the first six months of 2014.

The first quarter alone saw €4.9 billion worth of transactions, up €1.13bn from the same period last year, representing the constantly growing interest among investors. So, while interest is high and rents are soaring, this is the perfect time to invest in Germany before prices surge even further.

Spain

Spain was one of the hardest hit countries in the Eurozone crisis. At one time it simply seemed that the rain in Spain would not stop falling, as employment plunged, leaving over 30 million without work and scores of Spanish companies filing for bankruptcy.

However, commentators now believe that the sun is once again shining as scores of tourists have begun returning to the sun-blitzed shores, causing a revival in the Spanish economy and the property market.

Tourism is the key driver behind Spain’s economic and property market performance; if visitor numbers fall, then growth slows and property values drop. Increased tourism normally results in increased foreign investment in Spain; this can be seen most clearly in statistics which show that more British people visited the country than any other nationality in H1 2014 and more British people bought Spanish property during the same period than any other nationality.

This is also true when you consider tourist numbers across the board, as evidenced by the fact that 28 million foreign tourists visited the country in H1 2014, up 7% from last year, and hence, online searches for properties in Spain increased by 51% in the same period according to Knight Frank’s Global Property Search.

Tourism also significantly influences Spain’s economy. This impact does not only come from tourist spend, but the job opportunities that are created when tourism is booming. This year has been particularly fruitful in terms of tourism with more than 400,000 people returning into employment in the second quarter of 2014, 57% of whom have taken up jobs in the tourist industry. These are in fact the highest three-month figures since 2005, representing a clear turnaround in Spain’s tourist industry and hence, its economy.

The latest GDP data shows that there was a 0.1% increase in Q3 2013, after nine consecutive quarters of decreases, while the bank of Spain has stated that growth between Q1 and Q2 2014 was the highest since just before the global financial crisis began, putting the country on the brink of recovery.

All of this feeds directly into the state of Spain’s property market, which has now regained its popularity among foreign investors, as shown by the fact that foreign buyers were responsible for 19.4% of all Spanish sales in Q1 2014.

While some of these property purchases came from traditional EU buyers, a number of sales came courtesy of buyers outside of the EU. This is because of the recent introduction of the ‘Golden Visa’ scheme, which provides residency visas to non-EU nationals seeking real estate investment opportunities.

This new ruling opened up the market to US, Chinese and Russian buyers, who were among the most active foreign buyers in Spain during Q1 2014, with buying activity from each nationality surging by 88.9%, 83.1% and 62.6% respectively, compared to Q1 2013.

This has led to a thriving property market, where buyers of all nationalities are acquiring property after property in Spain, due to the inconceivable amount of growth available within the market as it starts to move back towards its pre-crisis peak.

Turkey


Like Spain, Turkey is another country whose economy and property market is dependent upon its tourist industry. It is no coincidence then that this year has seen both a surge in tourism and a surge in foreign property purchases.

Turkey has been particularly attractive with tourists this year, with the mountains of Bodrum, the hustle and bustle of Istanbul, and the beaches of Antalya proving irresistible to jetsetters around the world.

Visiting numbers jumped by 4.73% in H1 2014 to reach 15.24 million and, as if by accident, foreign property purchases increased by 42% year-on-year in the first four months of the year. In these four months (January – April) foreign investors bought US$1.21 billion worth of properties, representing an increase of US$367 million from the same period last year; while purchases in Istanbul alone rose by 127.2%, providing a vital boost to the economy.

Similarly to Spain, Turkey also profited from a change in its laws. The first vital change happened in June 2012, when the reciprocity law removed a condition, which once meant that foreign citizens or firms could obtain a property in Turkey only if Turkish nationals could do the same in the buyer’s country. The second vital change was the extension of residency permits, which allowed foreign buyers to receive a new one-year residency; previous to this, foreign buyers could only stay for three months.

These changes led to the upsurge in Foreign Domestic Investment (FDI) we see in Turkey today, which ultimately resulted in the country being named as ‘the second most attractive property market in Europe’ in a study by Errnst and Young.

With the Chairman of the Turkish Association of Travel Agents, Başaran Ulusoy, recently predicting that tourist numbers will reach £43 million by the end of the year, the knock-on effect on the property market is set to be hugely positive, making this the perfect time to enter the Turkish market.


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