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Uncertain calm settles on real estate markets

Thursday, 9 December, 2010 - 09:55

Real estate in big European cities is still too expensive for most potential buyers, especially as banks give out fewer loans. Prices are on the increase in London, but transactions are fewer. Meanwhile things are quiet on the real estate front in Rome, Paris and Madrid

The time is right to buy, according to Spanish Minister of Housing Beatriz Corredor. In a surprising show of optimism, she says that the price of housing in large urban centres could go up again this year, after falling continuously for more than two years. Another decisive argument for buying now is the tax deduction on real estate purchases for households earning more than 24,000 euros per year, which should still apply until the end of 2010. Perfect timing, it seems.

Madrid heats up

But for the Spanish to seize the opportunity, they need to be able to borrow! And the mortgage loan crunch should last all through 2010, according to the Bank of Spain. Since their rate of bad debts grew to more than 5% over the past three years, banks are now twice shy: they have become extremely cautious and give real-estate loans with parsimony. Banks are also stuck with a large number of unsold buildings, repossessed from property developers who defaulted on their payments. When the housing bubble burst, it left behind more than a million unsold new houses and apartments. Selling off that stock will take time, and it will not help the market pick up again, which some analysts expect to happen in 2012.

Despite the minister's claims, it is not very likely that real estate prices will raise soon, according to the home-staging agency Tinsa – another reason to wait a bit longer before buying. Indeed, real estate prices only dropped 15% in two years, says Tinsa, whereas the price adjustment in other countries hit by the real estate crisis was a lot more brutal. Given the wild heights reached during the speculative bubble, prices may still fall. In the meantime, potential buyers can rent at lower cost and with more ease than before, because the crisis has increased the number of properties for rent.
While no other European country was devastated the way Spain was – its real estate crisis was the main factor in the crash of its economy – the picture is no rosier elsewhere. Prices seem to be on a timid rise pretty much everywhere in Europe, although not enough to talk about a true upturn in the real estate market.

London picks up

In Great Britain, purchasing prices have been raising slowly for six months. The weak supply has spurred a nation-wide increase of 6.1% over a year, 10.3% in London. According to a study by the real estate group Savills, 859,000 properties were sold in 2009 in Great-Britain, 52% less than in 2006 and 2007, which were prosperous years. Yet prices remain on average 10% lower than in 2007. Many analysts believe that macro-economic conditions will strongly influence prices this year: the pressure of unemployment, and the credit crunch like in Spain should stabilise, if not lower, prices by the end of 2010.

Rome still too expensive

In Italy, real estate has been in crisis for two years. Yet offering prices for apartments, especially in the capital city, are the highest in Europe. For example, a centrally located, 30-square-meter apartment in Rome costs about 400,000 euros – and that's on the ground floor, with no kitchen, no light and no closets. Sales prices in large urban centres should drop 5% by the end of the year, according to Tecnocasa, the country's largest real estate agency. But it probably won't be enough to boost the depressed market. Furthermore, as many average-earning households are currently incapable of paying back their home loans, banks are tightening the purse strings. In these conditions, potential buyers are forced to wait for credit to loosen, says Tecnocasa. Last year, the volume of property transactions fell by 15.6% ((compared to what? To the previous year? Et qu'est-ce que c'est que la bourse de l'immobilier italien?? je ne l'ai pas traduit car je ne trouve aucune référence à cette entité).

Uncertainty in Paris

The volume of property transactions remains low in France, according to the Chamber of notaries. “The horizon of real estate is still cloudy,” say the notaries, “because unemployment is rising and it is uncertain whether interest rates on real estate loans, which are currently favourable, will remain stable.” But they are betting that the French will slowly go back to investing in bricks and mortar, given “the low financial returns of other investments and the uncertainty on the stock exchange.”
Prices which started dropping at the end of 2008 had fallen by 7.5% for apartments and 9.5% for houses during the third semester of 2009, according to the national statistics institute's index. In January 2010, prices in Paris where still falling by 0.35%, according to the real estate website Concerning high-end real estate in the capital city (worth 1 to 5 million euros), only foreign clients are still buying, says a study by Barnes, an agency specialised in prestige real estate. The agency notices that Russian buyers are making a comeback.

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