Does the European real estate market offer exceptional long-term value?

If you look at the European real estate market, the UK aside, there is little reason to rush into a property investment in the short term at least. As a consequence of the mortgage crisis in the US, banking crisis across Europe and mismanagement of many government budgets, the European real estate market has failed to recover to the same degree as the UK and other areas of the world. So, is it worth looking to the longer term and tucking away some European real estate investments for the future?

In many ways it depends upon your investment timescale and whether indeed you are looking for a short, medium or long term return. The very fact that real estate should be seen as a long-term investment is not always appreciated by short-term speculators which can extenuate market movements especially in troubled times.

European economy

The European economy has shown sporadic signs of recovery over the last couple of years although the reality is that a believable long-term recovery is still some way off. We only need to look at the unemployment situation in the likes of Spain, Portugal and many other areas of the region, not to mention Greece, and you could easily talk yourself out of even a long-term real estate investment. The euro is still in trouble, there are major political concerns after right-wing parties fared better at the recent European elections and the juggernaut which was the European Union is starting to stutter.

Quote from PropertyForum.com : “Concerns regarding black market in Spanish homes“

Again, in the short-term there is little in the way of positive news to grab hold of and the political upheaval we have seen over the last few days will only worsen in the short term. As a consequence real estate prices remain depressed in many areas, austerity measures are still to kick in and unfortunately the situation is likely to get worse before it gets better in many areas of Europe. Is this a reason to sit back and watch from the sidelines?

Looking longer term

In many ways investment markets pre-empt the eventual recovery in economies and the same is true of real estate markets. As we saw in the UK, real estate prices will recover before the actual economic recovery is fully under way as investors looked towards the longer term with hope. This initial turnaround can attract many short-term speculators which will push demand even higher and in many cases outstrip supply. We are nowhere near this situation in the European real estate market and indeed Spanish and Portuguese banks still have a significant number of properties to release to the market in the short-term. These were properties handed back to the banks when their customers reneged on their mortgages.

In a normal world you might expect property prices to recover after these unwanted investments have been dumped but the reality is that many investors are ahead of the game and will likely look to buy before the “natural bottom”. This could then lead to more short-term speculators jumping on the bandwagon and we could see a significant short-term rally. It is very dangerous to invest in real estate in the short-term but it has to be said that if we look 10 years ahead then countries such as Germany, France, Spain and Portugal to name but a few, will still be a major part of the European Union. Any long-term recovery will take in all of these countries and any recovery will be reflected in real estate prices.

Conclusion

Aside from the fact that real estate investment should always be seen as a long-term investment, the European real estate market is friendless at the moment. Some investors are nibbling at the sidelines, looking for specific assets which have been oversold and which offer value in the short, medium and longer term. It may well be worth considering a long-term general European real estate investment whether this is a collective investment quoted on the stock market or some form of unitised vehicle.

If you’re looking to invest in European real estate, stocks and shares or any other kind of investment, it is imperative that you take professional financial advice.