While it lasted the property boom boosted the wealth of many people worldwide. Fuelled by cheap money which led to mortgages being available to almost anyone just for the asking, property prices rose exponentially and, with stocks and shares in a sideways to down trend since 2000, property became the new get-rich-quick scheme as owners used equity in their main property to buy more houses and apartments to let to those who could not get on the housing ladder.
Holiday homes too became a ‘must-have’ and these were let to holidaymakers on a self-catering basis when not in use by the owner, thus producing rental income which helped fund the purchase cost.
However, as with so many get-rich-schemes, the property boom has ended in tears. The credit crunch may have started in America but its effects are being felt worldwide as both property prices and sales have plunged. The move from easy to tight money has been swift and, whilst in many countries there are buyers wanting to get on board the housing ladder now that prices are lower, the finance to enable them to do so is hard to find. In the UK mortgages that provided a preposterous 125% of the price of the property were common place during the boom, but today buyers have to provide at least a 20% deposit and interest rates are high. One third of sales are falling through because of lack of finance as lenders lick their wounds.
Elsewhere in Europe there are similar tales of woe. Worst hit has been Spain where the boom peaked in 2004. Prices started to fall due to overbuilding on the Costas and this has been exacerbated by the credit crunch and the rise in the Euro. The British have traditionally formed the bulk of the buyers of holiday villas in Spain and a combination of falling prices at home, more expensive credit, and a rise in the Euro of 15% against the pound; have resulted in the British withdrawing from the Spanish market.
Other European countries have suffered falls in property prices but not to the same extent. The falls have been mitigated by the fact that owning property has not been so fashionable in countries like Germany and Switzerland. In Germany only about half of the housing stock is owner occupied, whereas in Switzerland, it is much less than half with the majority happy to rent.
With many owners wanting to sell but unable to do so, the only answer is to try to let their properties. Foreign holidays have yet to feel the draft and continue to grow, albeit slowly. Cheap air travel continues to grow and the number of people taking self catering holidays now outnumbers those on all-in package holidays. So if your holiday home is located in an area that attracts visitors for most of the year, you should be able to ride out the downturn without too much pain. If you bought nearer home, those unable to buy must rent; so make the property as attractive as possible and hope that rental income does not fall as a result of over-supply.
Tony Luck runs two websites which could help those with unsold investment property. One advertises self-catering holiday accommodation, and the other advertises houses and flats to rent in England.
Tags: credit crunch, real estate, rentals
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