Investment is out, pleasure is in
One enduring problem for anyone looking seriously at trends in international residential sales has been the lack of serious analysis and absence of data.
Therefore, a recent report, despite being based only on British buyers and existing owners, is welcome because it throws light on the dark corners of the market.
The survey, the largest-ever of holiday homes owned by Britons across all five continents, was conducted by Savills estate agency and the leisure rental company HomeAway.co.uk. Some 1,200 properties were assessed in city centres, ski resorts, the countryside and on coasts, covering all price sectors from £20,000 (Dh110,599) to more than £750,000. I was given an exclusive preview of the results.
One the negative side, they show a dramatic slump in Britons buying properties abroad and reveal that one in 10 current owners now regret their purchase – probably because they are, for the moment at least, in negative equity. On the positive side, the remaining 90 per cent increasingly regard homes abroad as lifestyle possessions which they primarily want to enjoy – not necessarily make money from.
The survey shows some 430,000 foreign holiday homes are now owned by Britons. In 2008, as the downturn began, there was a 22 pee cent drop in annual sales compared to the previous year but in 2009, with the recession at full pelt, there was a further 80 per cent drop – meaning no more than a few hundred Britons bought abroad last year.
Those that did buy in 2009 were chiefly the better-off who did not need mortgages. "Higher income groups, with the ability to mobilise funds, have been able to take advantage of lower prices in 2009," explains Savills' Rebecca Gill, the report author.
Purchases in exotic but little-known locations have plummeted and the idea of buying flats in Bulgaria and Egypt to let out is a thing of the past. Even some classic long haul places like the Caribbean have seen demand slump. Instead, purchasers are looking much closer to home, chiefly mainland Europe.
The survey shows that before last year's hiatus, one in five buyers in 2007 and 2008 had 75 per cent-plus mortgages. With prices now down 10 to 30 per cent in most holiday areas – even more on parts of mainland Spain – many of these buyers are now in negative equity. Around 10 per cent of current owners say they regret taking the plunge overseas. Most respondents felt their homes had lost value in recent years but were relaxed about it, perhaps because the lettings market was doing well.
Almost two-thirds of those who let their homes in addition to using them for family and friends reported that 2009 bookings were well up on 2008, while only six per cent of the owners questioned had begun renting out for the first time because of the downturn. Predictably, most properties bought by Britons had three or four bedrooms so were good for letting as well as living in. They were located within an hour's drive of major airports served by budget airlines, so were the most popular amongst renters too. While "short haul" locations bounced back in popularity, the exception was mainland Spain where the market remains mega-depressed.
The country's mortgage brokers have called the housing market "bankrupt" and Madrid's Institute of Economic Studies warns that thousands of repossessed homes will flood the market this spring, depressing prices still further. But the Balearics are bucking the trend – well, sort of. The higher priced homes are selling well but the lower priced ones are "really tough to sell" according to one Mallorcan estate agent.
But there may be light at the end of the tunnel.
Agents are reporting more interest from British buyers in the first two months of 2010 and there is a genuine belief that "the worst is over". Even so, Savills and HomeAway.co.uk think it will be some years before we see any return of off-plan sale frenzies and Britons buying investment flats in low profile locations.
There are two important caveats to be applied to the research, of course.
One is that markets can change quickly; what applied last year will probably not reflect the next, say, two years as economies climb out of recession.
The other caveat is that this data is only about British buyers – but they do represent the single largest national market of purchasers for many international resorts, so even if their behaviour is not "exportable" it is an important barometer of the market.
We have to hope that when this annual research next reports, in March 2011, the picture is better. In the meantime for those who own a villa abroad there is one key message – investment is out and pleasure is in.
- The author is a property correspondent for The Observer
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