South European Real Estate

Past have decade had been a roller coaster ride for most members of the Eurozone. What had happened in Euro? Starting with Greece’s danger of credit default, this brought about domino effects on several companies. Ireland, Spain, Portugal and Cyprus all experienced financial crisis due to interconnectedness of debt obligation to each other in this single currency confederation.

The countries mentioned above were simply spending way above what they could afford pay back, and when the trust broke, so did their financial health. Greece, Spain and Portugal, especially, were spending enormous amounts of money into investments in real estates.

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At one point in time around 2009, the cement consumption per capita in Spain and Portugal was higher than that of China, which is quite significant considering that China is the fastest growing countries in terms of real estate. Spaniards and Portuguese were busy building vacation homes on the West coast of their country. For these two countries, the real estate bubble emerged and popped as the realization of implausibility of financial health in few countries.

Let us look at few seconds before this bubble popped. This could be a one of the prime examples of ‘castle in the air’ in Spain and Portugal as whatever real estate in the West coast were being evaluated through the roof into the sky. What happened when the bubble did burst though?

In my opinion, none like equities and other financial instruments, real estate has a very special characteristics of its own. When the bubble did pop, and the castle-in-the-sky fell, the castle in the air simply came down, and establish itself as a castle-on-Earth instead. Those real estates that went into massive sales for pennies worth of what they used to be in the market few years ago is making a slow come back. Castle is still a castle indeed whether be in sky or on Earth. These high quality vacation homes are receiving new attention.

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The largest capital inflow change is from the Asia Pacific in the past year with more than doubling.  However, the largest investors are still American funds both public as well as private. Especially with the Eurozone experiencing record low inflation, and European Central Bank’s willingness to maneuver to stimulate further in to the economy, real estate in South Europe may be a viable option for people who have money to invest. ECB actually announced that it may further lower interest rate to guard against dangerously low lingering around 0.7%.

There could still be concerns for investors regarding these assets–low inflation, still not fully recovered eurozone, political variabilities, etc. However, the innate stature value of real estate is decreasing only at its depreciation value. If you are looking for a long term investment opportunities, look into vacation homes in Europe.

 

4 thoughts on “South European Real Estate

  1. lippmanb

    I agree that this is of great concern for an investor. Right now might seem like the right time to make a purchase since the value is low, but there is always the chance that it’ll go lower.

  2. gaochen

    It’s quite shocking to know that the housing bubbles in Spain and Portugal were even bigger than that of China. Your analysis about the bubbles is very insightful.

  3. jyyoo

    Very nice post. I see housing bubble as one of the biggest signs of economy failure. I haven’t really thought of Southern Europe, but it seems like they suffered from such a big housing bubble!

  4. psseo

    Nice post on real estate investment bubble and I like to connect this bubble to castle in the air approach. This debt problem of these countries really harm economic recovery of euro area, and quite different situation among member countries makes it hard for European Central Bank to react its monetary policy.

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