With the carnage of the Global Financial Crisis behind us, real estate markets in Europe have begun to recover. Some took off faster than others, leaving cities like London, Amsterdam, and Munich with prices many consider to be overvalued.
Can awesome real estate deals still be had in Europe these days? Of course – unlike the places mentioned above, some countries took longer to extricate themselves from the Great Recession. As a result, Greece, Spain, and many countries in Central and Eastern Europe still boast great affordability even as their prices begin to rise significantly.
Economic fundamentals also support a sustained rise in prices in these places. Unemployment continues to fall and citizens are moving to cities in increasing numbers, both of which are factors putting upward pressure on property valuations and rents.
Also, the rise of sharing economy sites like Airbnb have led to an increase in property values. Investors have been buying up property in Central and Eastern European cities and converting them into short-term rentals. The removal of excess inventory has applied upward pressure on prices – however, they are still low compared to overheated markets, making them suitable for the average investor.
We wouldn’t advise waiting long, though – fears about an impending rise in interest rates by the European Central Bank has motivated fence-sitters to jump into the market. Why? Right now, interest rates are effectively zero. Thanks to the historically low cost of borrowing money, investors are racing to lock in these rates, as it is suspected they will be raised over the next few years to a more ‘reasonable’ level.
That said, where can one find great real estate investments in Europe over the next year? We’ve found five markets that strike the right balance between fundamentals, lifestyle, and price – check them out below.
1) Valencia, Spain
Home to long, sandy beaches, an eclectic mix of Moorish and postmodern architecture, and a foodie-pleasing gastronomic culture, it is hard to understand why a place like Valencia would be undervalued. One only needs to look up the coast to its Catalan neighbour for the answer. Barcelona, which is similarly famed for its food and architecture, has long had a larger profile.
Accordingly, it boasts property prices which are two and a half times more expensive than Valencia. Here, one can bag a 1000 square foot place for around €176,000. Rental yields are decent, with 5-6% being reported by investors already in the city. There are concerns, as the Catalonia political crisis impacted prices as recently as last year. With the situation now stabilized, though, property values in Spain are set to resume an upward trajectory, making 2021 a great time to buy in this sun-drenched city.
2) Bucharest, Romania
While it may be off the beaten track with respect to traditional tourist itineraries, Bucharest is getting a renewed look from real estate investors alike thanks to low property prices, a decent economy, and value-priced amenities.
The city boasts an interesting mix of Art Nouveau and Communist architecture, trendy coffee shops, and proximity to castles and Black Sea beaches. A 1,000 square foot flat in the city centre costs around €118,000, with many cheaper deals available if you shop around. Rental yields are decent too, with rates above 6% reported by established landlords in Romania.
3) Budapest, Hungary
A more affordable option compared to Prague, Budapest is a city bursting with incredible architecture, food, and nightlife. With Buda Castle, St. Stephen’s Basilica, and the Hungarian Parliament Buildings just being a few of the dramatic structures found within this Central European metropolis, it is only a matter of time before they catch up to their compatriots in the Czech Republic.
For the moment, home prices are still reasonable, as 1,000 square foot properties can currently be had for around €138,000. Don’t wait long, though – prices rose 14.6% over this time last year, and there no end in sight.
4) Zadar, Croatia
Want to get a piece of Croatia’s Adriatic coast, but don’t want to go broke in the process? We urge you to take a look at Zadar. A small but charming city wedged between the Dinaric Alps and the crystal clear waters of the Adriatic, it offers Roman ruins, medieval architecture, and European elegance at a discount to Western Europe. Homes can be had here for €1,482 per square metre, while flats fetch €1,898 per square metre.
For an 800 square foot apartment, you’ll pay around €141,000 – not bad considering what you’d pay for the same property in a place like New York City.
5) Athens, Greece
While Athens may be a bit of a risky pick given it is the only city where prices have fallen every year since the Global Financial Crisis, things are definitely on the upswing. According to Trading Economics, the Athens property market is finally expected to recover in a significant fashion, with a 24% rise in prices predicted by the end of 2020.
Improvements in the domestic economy, as well as an increase in tourism, are responsible for this turnaround. However, investors should be prepared to accept higher prices – Greek authorities are restricting foreign buyers to properties valuated at over €250,000. Rental yields are on the mediocre side (around 4%) in Greece, but things should improve as the recovery takes hold.
From hot to not: European real estate markets to avoid in 2021
While real estate valuations across the European continent are surging for the reasons stated at the start of this article, not all markets are great investments. Even if you had the capital to do so, we would advise against investing in the following markets:
London currently may be one of the world’s greatest cities for finance, but that title is now in doubt due to Brexit. With a hard Brexit or even a ‘no deal’ looming over this city’s head, many investors are already hedging their bets. They are doing this by moving at least some assets out of the country ahead of the outcome of Brexit negotiations.
Even before the Brexit referendum was held, London was considered to be an overheated real estate market. Even if everything works out, any gains would be too expensive for the average investor to realize.
Beset by investors eager to cash in on Amsterdam’s immense popularity with tourists, real estate investors have bought up homes in a city already short of real estate in the wake of the Global Financial Crisis.
A robust economy has only added petrol to the fire. Presently, an increasing percentage of this city’s citizens can no longer afford to buy homes. If ordinary workers necessary to the functioning of Amsterdam continue to be priced out of the market, a housing correction may result.
According to Swiss investment bank UBS, Munich ranks the highest on its Global Real Estate Bubble Index (1.99). Globally, only Hong Kong ranks worse (2.03). Any city that ranks above a 1.5 likely has real estate prices that are in bubble territory.
Why does Munich have such a stressed real estate market? In a word: desirability. It is within sight of the Bavarian Alps (where skiing is possible in winter) and is within easy reach of popular lakes in the surrounding Bavarian countryside.
Its economy is also among the best in Germany, with successful corporations like BMW, Siemens, and Allianz paying its employees exceptionally high salaries. Both these factors have conspired to make Munich’s housing market inaccessible to all but its wealthiest citizens.
There are plenty of undervalued markets left in Europe
If you blindly follow articles touting the ‘hottest’ real estate markets, you’ll end up making mediocre returns at best, and at worst, you may end up underwater. By looking for cities and destinations with real estate prices that are below their intrinsic value (and with great rental yields), you should be able to do well in Europe as we move forward into 2021.