Mainstream and second home buyers still seeking value for money, research suggests

With the global economy displaying green shoots property buyers both in mainstream housing markets and second home hotspots are looking closely at which markets offer real value.

Already in 2014 there has been a steady stream of positive indicators for global housing markets, according to the Global Opportunities from international real estate firm Knight Frank.

It points out that lending criteria is being relaxed, interest rates in Europe, the United States and the UK look set to remain at historical lows at least until 2015, employment is picking up and buyer confidence is strengthening.

‘This upturn in the global economy, albeit gradual, has meant that for some homeownership is back on the agenda for the first time since 2008,’ said Kate Everett Allen, head of international residential research.

The report uses the latest available data from the Organisation of Economic Co-operation and Development (OECD) to assess how house prices are performing compared with rents and incomes and then gauging which housing markets are overvalued or undervalued.

Norway, Canada and Belgium, where prices are still rising, represent those countries most at risk of a price correction, particularly if mortgage rates increase or incomes start to slide. The price declines evident in much of Europe, the UK and the US post 2008 largely passed these countries by.

In countries such as Greece, Spain, and Portugal prices are still falling while Germany and Japan, having missed out on the double digit price growth observed in many developed economies in the early 2000’s remain firmly in the ‘undervalued’ camp.

Mainstream prices in France and the Netherlands, while positioned in the ‘overvalued’ camp, are seeing the rate of decline slow suggesting they are further ahead in the property cycle.

‘While comparisons offer valuable insight, it’s important to note that they are based on national average income levels and national house prices which mask different city level dynamics. In cities or local markets with a large amount of global and second home purchasers the ratio outcomes would be significantly different due to higher incomes and rents,’ explained Everett-Allen.

The report also looks at how much prices have fallen in prime property markets that are popular as holiday home locations. In Europe most have seen considerable price adjustments since the global credit crunch.

The Dordogne in France has seen prices fall by 45%, as has Gascony in France. Marbella in Spain has seen a drop of 35% while Praia da Luz in Portugal, Umbria in Italy and Son Vida in Mallorca have seen prices fall by 30%.

Prices are down 25% in Andratx in Mallorica and in Evian on the banks of Lake Geneva while nearby Chamonix in the French Alps, Quinta do Lago in Portugal, Cap d’Antibes in the south of France and Florence in Italy have seen a downward movement of 20%.

Prime prices have down better in Switzerland. They have fallen 15% in Montreux and Geneva and just 4% in Zurich. They are now moving upwards in Florence, Umbria, Gascony and Chamonix, but still falling in Spain. They have stabilised on the other locations.

The report points out that following six years of low sale volumes the number of second homes on the market in some locations remains high. ‘For buyers this may be a positive development, providing a wider choice of properties and some room for negotiation on price. However, if it is planned as a short term investment, focussing on quality and location will expedite a future sale,’ explained Everett-Allen.

She pointed out that some excess supply may be absorbed by the new Golden Visa initiatives which offer residency to non European Union buyers in Spain, Portugal, Greece and Cyprus in return for a capital investment or property purchase. There is anecdotal evidence that Chinese and Russian buyers are signing up but few official statistics.

Everett-Allen also pointed out that although the political, economic and financial implications of buying a second home merit close consideration the final decision is often one based on lifestyle and/or changing family circumstances.
‘For many buyers, a second home purchase often turns out to be an investment of passion rather than a number crunching exercise,’ she added.