Famous business newspaper Businessweek wrote an interesting article regarding real estate investment in Europe, especially focusing on the situation at different markets.
The prices have slummped over the last two years. It is enough to mention Spain and their price drop of 35%. The situation is even worse if we take a look only at commercial real estate, in which case the prices have hit the bottom after a 72% drop, like France for example. It is fair to say that things were not looking good at all. But what happens after prices drop? It may sound silly, but they rise again and there is a good economic explanation. Lower prices mean more attractive investments and there is no reason for this not to aply for the property market as well as the economy in general.
What this means is that real estate markets which were regarded as “hot” before the crisis are going to get “fired up” again. In the case of Europe this means countries of the east, including Croatia and Montenegro on the Adriatic, but it also may aply to certain western countries that endured large price drops.
One good sign that this is coming is also the fact that market activity in the USA and UK has started to rise. Some real estate agencies in London had a rise in traffic of almost 20% from March to April. We could also take a look at Dubai that became more attractive to average investors after the prices dropped 25% during the crisis. Still, there is no reason to “jump in the fire” because the safest markets are still those that can “back up” their property market with a long term economic growth, which means India or Turkey, but this absence of risk may also mean absence of large profit.
When we talk about Croatia and Montenegro, we have to take some details into account. For example the fact that the prices in Croatia are artificially high even now, which was described in one of our recent articles, and the fact that investments were very high before the crisis, expecially in Montenegro, where they amounted up to 600 million dollars yearly. Another thing to consider is the fact that both Croatia and Montenegro are on a way to being developed tourist countries, which also means they have to attract a lot of foreign investment, so many believe there will be some additional government rules soon that will make the markets even more opened to investment, especially in those areas where tourism activity started to stagnate due to lack of capital.
To conclude, it is now quite safe to say that recovery has already started in most European countries, or it will start soon. What this means for developing countries, like Croatia and Montenegro, is another cycle of investment projects, including property investment.