European luxury real estate market stable
By Jens Fischer
Many people think that if there is a crisis, crisis is everywhere. However, there are several sunny islands in the storming ocean, that keep prospering and attracting survivors. Name of one of them is Luxury Real Estate. The American real estate crisis has reached Europe – a fact that cannot be denied on the one hand but that has to be seen in different ways. Whilst prices in many regions and countries in Western Europe for standard houses have dropped up to twenty-five percent in 2008, which applies to almost all countries in Western Europe, the luxury market remains relatively stable. No substantial consolidation can be seen here, nor do experts expect a consolidation period to come during the next months.
The European luxury property market mainly refers to properties in traditional, posh, sought-after and highly reputable prime locations throughout Europe. Prices ranging from 1 million Euros up to more than 125 million Euros are being paid to some of the most exclusive freehold houses and mansions currently on the market in France and Spain and 750k and more for exclusive condos. Such properties usually qualify as luxury consumer goods pretty similar to sports cars, yachts and jewellery, and therefore are less influenced and affected by the general market downfall. Buying these properties is of a rather more emotional than of a reasonable nature and as a result is subject to differing behavior.
Furthermore, buyers of luxury real estate usually do not call for any financing and are therefore not involved in the current finance and mortgage crisis. That distinguishes them from the majority of normal house owners in Europe who usually require loans covering up to ninety percent of the purchase price. Indeed, these are heavily affected by the crisis, since interest rates increased significantly, people are about to lose their jobs and, therefore are no longer able to effect their payments. However, banking companies tend to be patient and judicious with several of those owners, granting deferment of payment. It is pretty obvious that granting such periods free of redemption and payment of interests is the lesser of the two evils for the banking companies. Currently foreclosure sales are not realizing a fair market price, nor do they often cover the amount borrowed. But this is particularly related to standard houses and does not apply to the luxury sector in general.
The luxury sector remains stable, in particular the Greater Zurich Area and Geneva in Switzerland, Tyrol in Austria, the Munich area in Germany, the Côte d`Azur/Provence area in France, the Balearics and the Marbella area in Spain, Northern Italy including the Portofino area and Sardinia and, all things considered, London and surroundings in the United Kingdom. All of these places are well known for their international and wealthy buyers, their infrastructure and their above-average quality standards. Though prices do not increase anymore at rates of ten percent a year or more, as seen during the past decade, and though clients are taking more time to come to a buying decision, demand for luxury properties is still unchanged. Demand still outstrips the amount of suitable properties available on most local markets. Brokers being familiar with these locations have been stating again and again that it is still difficult to find enough high-end properties to serve the demands. In brief, many of the respective local markets still are sellers`markets and they are expected to keep this status.
The Spanish luxury market in the renowned Marbella area is currently struggling with slight feelings of insecurity, resulting from ongoing corruption in the local property sector. Permission to build properties, freehold houses and condos, especially first line to the Ocean, were granted by the local government for years to nearly a thousand homeowners and professional property developers without having been compliant with the federal Spanish law and that has led to the revoking of numerous of the building permits. However prices have not dropped significantly anyway. It appears, this results from the fact, that the majority of the property on the market is located in private gated communities, a couple of driving minutes away from the coast in the surrounding hills with overwhelming views of the Ocean, offering high-level services and the highest possible amount of security as well as desirable amenities. All of these seem to be undoubtedly compliant with the law and are not located within the above illegal areas closer to the sea.
Security issues were said to be the reason for a small decrease in the Côte d'Azur area. I t is said that people moved to even safer places from there, such as Marbella and the Balearics in Spain. However, property developers, such as German entrepreneur Dietmar Hopp, who co-founded leading software company SAP, also started to establish private gated communities there a couple of years ago, which has resulted in increasing prices. This applies to the St. Tropez and Nice / Cannes area in particular.
