According to Michael Ball, a professor of real estate at Reading university and a housing adviser to the UK government. Second home owners in the Mediterranean and eastern Europe face a property correction because of the credit crisis. I thoroughly agree with this diagnosis. In Spain, where I live, I am absolutely convinced of this, my only query is whether the crrection will happen dramatically over one or two years, or more slowly over 5 years or so, as happened in Germany after the 1995/96 boom.
I imagine Eastern Europe may have regions which are similarly exposed (the Black Sea coast etc). Ball says holiday homes in many parts of the European continent are vulnerable. Not only have prices risen fast amid speculative interest and easy availability of credit but the supply of new flats has also been increasing at a prolific rate. Ball pinpointed the Mediterranean and central and eastern Europe in a speech to the Investment Property Forum given on Thursday night.
There are a variety of reasons in that in both of those areas, credit has been used and people have been very optimistic about long-term values....There has been a boom, the market has been driven by foreign investors, and now that is beginning to turn."
He specifically cited the Estonian case, where house prices had dropped by an estimated 10 per cent in the past 12 months. "That will probably trickle through to other countries." he said.
As the FT point out these warnings come amid widespread price falls in the second home markets of Florida, where some resorts have seen double-digit drops in the past year. The number of home sales in Florida dropped 43 per cent between the first and second quarters.
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