The Best European Cities For Property Investment
As the property market in Europe recovers from the global recession, which are the best cities for growth potential in 2017? Overseas property broker Tranio has analysed property price dynamics over the last ten years to give us the lowdown on making a savvy investment.
Most property market players would agree that when it comes to investing in property, location is everything. To lower risk in any property portfolio, diversity of location is crucial too. “In 2017 we encourage investors to diversify their investments and distribute their capital between different markets,” advises George Kachmazov, managing partner at Tranio. “I would suggest clients put the majority (70%) of their investment capital into low-risk projects that are known to yield 4-5% per annum. Micro-apartments (20-30 square metres) in big German cities are perfect for this type of investment due to being inexpensive for tenants, while attracting relatively high rental revenue per square metre for owners.”
For those who wish to make short-term investments, experts recommend choosing markets that have entered the recovery phase post-recession. These are locations where prices have fallen dramatically, but have recently started to rebound and still have considerable growth potential. Such markets favour redevelopment projects and buying property under construction for further speculative resale.
In 2017 these strategies are expected to bear fruit in eight European cities: Bucharest, Madrid, Barcelona, Sofia, Dublin, Bratislava, Lisbon and Warsaw.
One of Europe’s most promising property markets in 2017 is Bucharest. According to Romanian real estate site Imobiliare, residential property prices in the city fell by 35.4% between 2008 and 2016: from €1,771 to €1,144 per square metre. However, a 5% surge in prices between September 2015 and September 2016 was backed by economic growth: in 2015, the country's GDP increased by 3.7% (one of the best figures anywhere in Europe).
Madrid and Barcelona will also be hot markets in 2017. As a whole, Spain's economy is growing and its unemployment rate is shrinking. Meanwhile, mortgage rates are low and demand for property is on the rise. All of these factors indicate that the country’s property prices are poised for further growth, and the major cities are expected to outpace the rest of the country. In Q3 2016, local residential property sold for an average of €2,902 per square metre.
“I’d encourage an investor to put 30% of their investment capital into a Spanish redevelopment,” says Kachmazov. “Such projects typically yield 12-15% per annum. Right now the Barcelona property market is ripe with opportunities. Residential property prices in the city are still a far cry from reaching their peak, there is a shortage of newly-built real estate in the city, loan rates have dropped to the minimum level and prices are broadly expected to soar in years to come.”
For those who are looking for property in a lower price bracket, Sofia in Bulgaria is an excellent choice. Prices have plummeted by an average of 20.1% in recent years – from €570 per square metre in 2008 to €450 in Q3 2016. However, Sofia's market is recovering, and buyers have become more active. Low construction volumes are expected to encourage further price growth.
The Warsaw market is also poised for growth in 2017. According to the National Bank of Poland (Narodowy Bank Polski), property prices in the city fell by 13.9% between 2008 and 2016: from €2,314 to €1,992 per square metre. Analysts are divided about Poland’s growth prospects however. Trading Economics expects Polish real estate prices to fall slightly in the near future, but expects prices to subsequently return to the 2016 level by 2020. Meanwhile, experts from professional services firm Ernst & Young and real estate firm Knight Frank have displayed considerably more optimism about Polish prices in the coming year.
Locations to Maintain Capital
Those who wish to play it safe and who prefer reliable long-term investments would do well to consider putting their capital into rental properties in stable markets. Residential property prices in many European cities have weathered the storm of the global financial crisis admirably and will see growth until 2020.
Berlin has experienced the most dramatic growth, with property prices in Germany's capital continuing to soar in the years following the crisis. Overall, prices have nearly tripled since 2008, increasing from about €1,610 per square metre to €4,613, according to German real estate site Wohnungsboerse and a survey by Investitionsbank Berlin. The recent property boom in Berlin is attributable to a number of factors: including the growing population, shrinking unemployment rate, mortgage rates having sunk to an all-time low (1% p.a.) and the construction volume failing to satisfy growing demand. The well-developed rental property market – up to 80% of Berliners rent - has also been attracting investors to the city.
Prices in London grew by 84% between 2008 and 2016. According to the Nationwide Building Society, residential property prices in the UK capital grew from an average of €300,000 in 2008 to €560,000 in Q3 2016 (a single square metre in central London costs an average of €18,000). As of late 2016, new-build flats for sale in central London were available at prices that were 15-25% lower than prior to the Brexit referendum in June. In 2017, London's market is expected to stagnate, with dynamics of between -1% and +1% anticipated, but price growth is broadly expected to resume in 2018. The potential for growth is especially high along the commuter belt near Crossrail high-speed railway stations.
Photos: courtesy of Tranio; Milosh Kojadinovich/TomaszFelex Pergande/123rf