Last December, the central bank of the European monetary union (ECB) did the equivalent of printing nearly 500 billion Euros worth of cash. The central bank, basically lent money to more than 500 European banks at just 1% interest; in so doing, it injected a huge amount of cash into the European economy. They are expected to infuse another 1trillion later this year. This action will rise the overall profitability of the Eurozone banks by 4%.
That should trickle into the rest of the economy and therefore stimulate it significantly enough to encourage potential real estate investors.
However, Assetz International, a company which offers premier overseas holiday homes and investment property in selected countries, including the USA, France, Portugal, Spain, Cape Verde, Turkey and Cyprus, as well as a dedicated Assetz Ski division, says that investors should resist temptation of cheap Eurozone property.
The company cautions those adventurous investors who may be tempted to take advantage of the current Eurozone woes to seek distressed property bargains. They claim that the crisis is far from over and the risk to property values in some countries is still unacceptably high.
Distressed property in Portugal and parts of Spain, which in some cases can be bought for 50% less than at the start of the downturn, is attracting the interest of long term, risk taking investors who intend to benefit from potential capital growth when demand recovers.
Assetz advises that until the Greek crisis reaches its conclusion, investors would be wise to take a ‘wait and see’ approach towards buying properties in high risk countries such as Spain, Italy and Portugal.
Although unlikely in the short term, if the Eurozone did break up, the impact on sterling denominated property values for foreign investors could be devastating in weaker countries, if they exited the Euro and returned to a devalued national currency. This is still very likely in the case of Greece and a distinct possibility in the case of Portugal, Spain and Italy.
Stuart Law, Chief Executive of Assetz, said: “The persistence of the crisis, coupled with slow growth projections and a weak performance from EU authorities and governments, means things are likely to get worse before they get better.
“The property markets in these countries are not going to recover quickly, as their recessions drag on. Sensible investors will wait until there is some indication of a resolution to the sovereign debt crisis in Greece and the impact on the banking sector and the economies of other weaker EU members can be assessed. Property may look appealingly cheap in some cases, but it could be worth half of today's values to a foreign owner if it was suddenly being valued in Drachma, which we believe could face a 50% devaluation if Greece leaves the Euro.
“There will always be demand for property in desirable locations such as France’s Cote d’Azur and Paris, but raising finance currently can be a challenge. Cash rich holiday home buyers who can afford to take a longer term view and are motivated to buy for the location and climate, may feel the time is right to seek out a bargain. However, the majority of investors would do well to sit tight until the situation becomes clearer, or concentrate on safer countries with less exposure to a partial Eurozone breakup such as the UK, USA or France.”