Uncertain outlook for European property investors

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by Gill Montia

Britons who have invested in residential property across Europe could to see the value of their properties fall during 2008.

In its annual survey of European housing markets, the Royal Institution of Chartered Surveyors (Rics) found that last year, almost all eurozone countries suffered either a sharp drop in house price inflation or actual falls.

The report states: “The knock-on effect of European Central Bank interest rate policies and general rises in interest rates have led to the noticeable slowing of Europe’s housing markets.”

It goes on to explain that the effects of the global credit squeeze, which have increased borrowing costs in the UK, have yet to be fully felt in the eurozone.

In terms of gains and losses, house prices in Ireland fell 7% last year, while in the Baltic States prices rose in the early months but the gains were wiped out by December.

Prices fell significantly in Germany, despite a good performance from the country’s economy.

In France the annual average rate of increase stood at around 3%, less than half the rate of 2006.

Spain, one of the most popular destinations for British buyers, saw a similar decline and the Rics is predicting a more significant fall this year.

Belgium, the Netherlands and Scandinavia all saw a drop in house price inflation.

Poland had the highest rate of price rises anywhere in Europe, at 28%.

The report’s author, Professor Michael Ball of Reading University, is expecting things to get worse before they get better, stating: “Slowing economies, and housing markets, need lower interest rates but higher inflation is against them. How Europe’s housing markets fare … depends on how that tug-of-war develops.”