No property investor wants to miss out on the next big opportunity, but there are still some countries that, despite all the marketing hype, will leave you feeling the chill of recession long after you have parted with your cash.
Although there are arguably many worse places in the world to put your hard-earned money, overseas property investment company Colordarcy took a look at what it considered to be the worst property markets of 2013 – markets that enjoyed stable governments and democracies, as well as functioning economies.
All of its selections of the worst property markets for 2013 were in Europe, with just one making it onto the list for the second year running.
5. Italy
Italy’s economic situation is so bad the government is even laying off job centre staff to save money. This goes some way to explaining why Italy enters our Worst Property Markets list. Property prices in Italy have slumped by 5.1 percent. Just when other parts of Europe are worrying about property bubbles – Italy has lost all the fizz out of its property market.
That said, there is no shortage of opportunities to invest in Italy if you enjoy la dolce vita (the good life) with some nice properties to be found amongst the lemon trees in those green Tuscan landscapes.
Any students of Italian history will know about Italy’s economic miracle of the 50s and 60s. It needs another one now. Italy has suffered the longest recession since the end of the Second World War and, with consumer spending low and exports not competitive, the economy is forecast to shrink by 1.8 percent this year.
The next generation now has to deal with youth unemployment at a record high of more than 40 percent. Many would rather leave the country than buy a home in Italy.
Italy hasn’t been in this kind of mess since the end of the Second World War, and it is unlikely that a second economic miracle will be coming anytime soon.
If you bought a property in Italy in 2013 it is likely you will have lost money, and the chances are that you will lose even more in 2014 while trying to plug the leak in rental returns.
ECONOMY: It’s still shrinking and the outlook remains bleak.
CAPITAL GROWTH: All the cards are stacked against it.
RENTAL MARKET: At 2.56 percent in the capital, Rome, the rent wouldn’t even cover your costs.
FINANCE/MORTGAGE ACCESSIBILITY: The mortgage market is tight in a country where job security is a thing of the past.
VALUE: Property in Italy is expensive and there are better places to invest your money unless, that is, you have a particular liking for this country.
4. Croatia
The head of Croatia’s Chamber of Commerce was recently arrested on suspicion of corruption and embezzlement. This is news the country can do without, after years of recession and plummeting property values which saw another 5.5 percent fall in 2013.
Croatia is a beautiful country and a nice place to visit for cheap holidays, but a property investors’ paradise it most certainly is not. This is a country where it is still acceptable to send ‘thugs’ around to evict a stubborn tenant, according to The Global Property Guide.
What can be said about Croatia is that it is an example of how joining the European Union doesn’t necessarily guarantee an upsurge in property prices and an economic feel-good factor. Unlike some East European countries fortunate enough to join the EU party early, Croatia was the latecomer – arriving just as most of the rest of Europe was nursing a hangover.
After four long years of recession there are rumours that Croatia may seek assistance from the International Monetary Fund (IMF). The country’s borrowing needs were described as “enormous and very risky” by their own Finance Minister.
This doesn’t inspire confidence; however, if you are willing to take a very big gamble, Croatia is expecting to be out of recession in 2014. It has to be said, however, that adoption of the euro is unlikely to happen for two to three years – and is that a good thing anyway, these days?
ECONOMY: Croatia has been in recession pretty much since 2009. There are real hopes of a recovery in 2014, but this depends on EU growth and there hasn’t been much of that lately.
CAPITAL GROWTH: Prices were still heading south in 2013 and are likely to continue doing so in 2014.
RENTAL MARKET: 2.73 percent rental yields are hardly better than Italy. Still, if you have a problem tenant, you can send around some ‘thugs’ who may be happy to remove your tenant for a fee!
FINANCE/MORTGAGE ACCESSIBILITY: Let’s face it, no serious lender will want to lend you money to invest in property in Croatia unless you can convince them that they will get it back somehow.
VALUE: It’s cheaper to buy a house here than Latvia ─ but why would you?
3. Spain
Spanish property developers have been trying all sorts of incentives to attract investors into its property market in 2013. The result, another 7.6 percent fall in property prices which wipes off nearly 40 percent in total prices in some areas since the peak of 2007.
The problem with Spain is that its people are dealing with a deep recession – and foreign investors know they can go there and negotiate for bargain prices. This means every discount brings a further fall in prices. It has been part of a vicious circle that has been going on for years.
Spain managed to avoid the list last year, because we thought that things surely couldn’t get any worse for the country, and that the bottom had been reached. Unfortunately, this turned out not to be the case. Everyone trying to sell property in Spain is willing the market to recover, yet the numbers just keep on falling to the point where nobody knows how long it will be before the bottom is finally reached.
Still, there is a bright side now with Spain. Fitch, the credit ratings agency, has removed the country’s negative outlook, even though Moody’s (another major credit ratings agency) continues to see Spain’s creditworthiness as “just above junk”.
Even unemployment has fallen, though it remains at more than 25 percent. Countries with high unemployment and 0.1 percent GDP growth don’t make ideal destinations for property investors, however Spain must surely be one to watch in 2014 if the market does hit bottom.
ECONOMY: Bring out the Cava (these are hard times!). Things are looking up after another tough year. Spain finally made it out of recession in 2013.
CAPITAL GROWTH: You may have lost another 7.6 percent this year. Still, at least we can look forward to better things to come – just not yet.
RENTAL MARKET: Still poor at 3.45 percent or less in some cities. The Spanish people just don’t have enough money to pay high rents, and holidaymakers remain spoilt for choice.
FINANCE/MORTGAGE ACCESSIBILITY: You can easily get a mortgage to invest in Spanish property.
VALUE: After years of painful price falls, Spanish property is looking a lot cheaper.
2. Hungary
There is an old saying in property, “Invest in Hungary and you’ll go Hungry”. Actually, we just made that up – but it is true that this central European country continues to offer property investors nothing – and things must be even worse than last year because it makes our top (or bottom) two – whichever way you prefer to look at it.
The only positive things we can say about Hungary is that the situation is not as bad as in Greece, and Budapest is still a great place to enjoy a long weekend. There is also the recent announcement that Hungary will record some economic growth in 2013.
One percent GDP growth might not sound like much but, for a country that has been through the mill, this is a huge boost and might hint at better things to come even if the fact remains that property prices slumped by 8.2 percent in 2013. Hungary expects to see double the GDP growth in 2014 and it looks like the spending power of its people will be boosted by a government committed to stimulating growth.
I’m sure I heard all this last year from the optimistic Hungarians and it might be enough to convince property investors to set off for Hungary again next year if economic growth returns and demand for housing rises. Until then, investing in Hungarian property means sub-5 percent rental yields and no capital growth.
ECONOMY: More good news than the other four on our list, with GDP expected to double to 2 percent in 2014 and the living standards of its people rising again.
CAPITAL GROWTH: Maybe next year.
RENTAL MARKET: 3.83 percent yields are nothing to write home about.
FINANCE/MORTGAGE ACCESSIBILITY: You can get 70 percent loan-to-value but there are a few hoops to jump through to get the finance. Not worth the effort at the moment.
VALUE: In Hungary you get more for your money compared to Western European cities.
1. Greece
People were celebrating the fact that Greece’s economy shrank by “only 3 percent” in the third quarter of 2013. This should tell you something about the trouble Greece was in before.
Still, Greece moves up to number one on our list because the countries that we thought were worse places to invest last year have started to get their act together.
The real downside for Greece in 2013 was another 12 months of double-digit price falls. Property prices were down another 11.5 percent, according to Knight Frank.
Now, if you happen to be a property investor considering Greece then there may well be something in this if you like to look at the very long term – and can afford to take some of the pain in the short- to medium-term.
It has to be said that the situation is still grim in Greece, even if it hasn’t been in the news so much lately. Youth unemployment is over 60 percent now and general unemployment is more than 27 percent. There are drive-by shootings of party officials, and the situation in the country can be described as unstable and volatile. Not ideal for foreign investors who crave stability after a long downturn!
Rental yields average about 3.5 percent if you are lucky to get a tenant in a steady, well-paid job, but don’t expect to see any capital growth in 2014. It is more likely that you will lose capital here.
ECONOMY: The Greeks are relieved that their economy is only shrinking 3 percent a quarter now. Unemployment is 27.3 percent.
CAPITAL GROWTH: You will almost certainly have lost money on property in Greece in 2013. 2014 is unlikely to be any better.
RENTAL MARKET: Yields are poor at less than 4 percent, even as property prices are still tumbling. Tenants may not have the job security they once enjoyed before the country got itself in an almighty mess.
FINANCE/MORTGAGE ACCESSIBILITY: Mortgage for a property in Greece? Are you joking?
VALUE: What someone is prepared to pay for your falling asset. There are safer and cheaper alternatives elsewhere.
This article was prepared in association with Colordarcy Investments and edited by Andrew Batt,
International Group Editor of PropertyGuru Group. To
contact him about this or other stories email andrew@propertyguru.com.sg
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