Europe's Best And Worst Property Markets
Parmy Olson, Forbes Editor on Wed Apr 2 at 5:09 pm 


When American real estate sneezes, Europe's housing markets catch a cold.
Though some European countries are experiencing growth, recent house-price figures indicate that, as in the U.S., things in Europe are slowing down.

The big loser? Surprisingly, Ireland. House prices there have cooled, making its property market one of the first and most extreme casualties in the latest global economic downturn. Prices dropped 7% in 2007 after rising 12% a year earlier, according to figures from the Royal Institute of Chartered Surveyors (RICS), a nonprofit property consultancy based in Britain. That's a serious downturn for an economy that has recently been seen as the wunderkind of the Eurozone. 



Spain is also suffering. The housing market there was scorching just a year ago, boosted by overseas demand for the country's sun-drenched villas. But house-price growth slowed to 3% in 2007 from 9% a year earlier.
Those living in Poland, the EU's fastest-growing housing market, are faring better. It tops the RICS' survey of 21 leading economies in Europe. House prices there grew at the phenomenal rate of 28% in 2007. Cyprus and Iceland are right behind. There, house-price inflation accelerated last year, to 15%--from 7.6%, and 9.0%, respectively.

Blame The Rates 

These are anomalies; most housing markets in Europe either slowed sharply or slid backward in 2007. But before you start thinking this has anything to do with the subprime mortgage crisis in the U.S. and the ensuing global credit crisis, think again. Rising interest rates by the European Central Bank (ECB) are largely to blame for last year's downturn.

Here's more bad news: Don't expect stabilization anytime soon. Unlike the U.S. Federal Reserve, the ECB is loathe to cut borrowing rates, which means the effects of the credit crunch have yet to be felt.

That's not good news for big continental players like Germany, Europe's largest economy.

While the German economy has been enjoying a mini economic renaissance in the last few years, its housing market has been slow to catch up. Not helping matters is the fact that Germany has one of the biggest rental housing sectors in the world: some 58% of all its households rent, according to globalpropertyguide.com.

Meanwhile, a slowdown in the French economy is also hurting its housing market, with a similar "quieting" happening in the United Kingdom, Belgium and the Netherlands.

"Are the skies looking a little brighter? It is still too early to say," says Liam Bailey, head of residential real estate research at the London-based Knight Frank.

He says Britain's key hot spots are still the glitzy Central London districts of Kensington and Chelsea. But growth even in Britain's capital, which boasts some of the most expensive property in the world, is slowing. In mid-2007, quarterly growth in prime London was around 8%--now it's at around 2.5%, according to Knight Frank.

There are some countries, like Bulgaria and Latvia, that didn't make our list. This is simply because the RICS has not been able to get their government statistical departments or housing associations to release the relevant information. But anecdotal information shows that while these housing markets have seen phenomenal growth, even they are on the wane.

"There was a peak in growth in the Baltic markets, but it's over," says Gareth Williams, Knight Frank senior research analyst. "You won't see the 40% to 50% growth rates again in those countries." The peak for Latvia was in the beginning of 2007; Lithuania was a little earlier, he says.

Latvia's mortgage market--or the total value of mortgage loans outstanding--rose by a phenomenal 86.5%, in 2006, according to research by the European Mortgage Federation. In Bulgaria, it grew by 73.5%, for the same period, and in Estonia by 63.4%. But even that was a fall from 97.2%, for Latvia and Bulgaria in 2005.

Who's been investing in these places? "The Irish are big on cross-border investment," says Williams. "The Germans are buying in places like Bulgaria. Also, a lot of property there is purchased by Russians."

These are just a few of the prime property hot spots generally thought to be safe bets. Others include London, Monaco, France's Dordogne and gorgeous coastal locations like Cote D'Azure or the Northern Sardinian beach paradise of Costa Smeralda.

Europe's pockets of prime, or ritzy, property have another good reason to see through the credit crunch. The people who buy multi-million dollar houses don't typically take out mortgages--they can usually afford to pay the asking price upfront. That means the rate decisions made by central banker in Brussels make little difference.

But for Europe as a whole--and that includes countries outside the EU, like Switzerland and Iceland--housing markets will be determined by the region's motley economic fortunes.

And they're in a dubious state at the moment. 

Such knowledge doesn't supersede the use of a home inspector when buying a home, new or old, but it can help you develop a savings plan so you are prepared for the inevitable.

Sooner or later you'll have to repair or replace many of your home's parts -- inside and out.

Knowledge of components' life expectancies is what homeowner associations use, in part, to build a reserve fund designed to spread, over time, the cost of the inevitable.

When the roof goes, the appliances conk out, or the paint begins to fade, it's a lot easier to come up with the cash if you've already got some socked away for just this kind of rainy day.

Use the timelines as a general guideline. Local weather conditions, use habits, regular maintenance -- or the lack of it -- can all affect the life expectancy of many components.

Personal tastes for contemporary upgrades, remodeling needs and other factors may also dictate replacing parts before their useful life time is up.

From the foundation to the rooftop, here's a quick look at how long, on a national average, some of the most common home components are expected to last.