Is this the darkest hour for European property markets?

There is no escaping the fact that there is growing momentum for Greece to pull out of the European Union and ditch the euro. Ongoing elections have placed anti-European parties at the head of the table and it seems almost inevitable that the country will withdraw from the European Union in due course. When you bear in mind the confusion and concern when Greece wobbled just a few months ago, a full-blown withdrawal from Europe could have devastating consequences for the European property market.

This comes at a time when the Spanish property market is showing signs of life, when investors seem to be “bottom fishing” for good long-term value and there was some light at the end of the tunnel.

Further turmoil in the short term

If we even put aside the Greek issue for one moment, the announcement this week of a €1 trillion quantitive easing package to restart the European economy does not bode well for the short to medium term. The euro is now under severe pressure and with no likelihood of a short-term solution to the ongoing problems the currency is certainly attracting the attention of traders expecting more short-term downside.

The simple fact is that for any property market to prosper there needs to be underlying confidence in the economy and a strong outlook for the foreseeable future. There are very few experts who would put their hands in the air to suggest that the European economy will perform admirably in the short to medium term and even fewer would be prepared to give their opinion on the long-term structure. At the moment there is so much confusion and mistrust surrounding the European Union that it can only impact negatively on property investment in the short to medium term.

Property prices across Europe

When the UK government refused to take up the euro there were howls of displeasure from European Union colleagues but this move has certainly been ratified of late. It is no coincidence that the UK property market is going from strength to strength, investors see London as a safe haven and even the introduction of a proposed property tax is having limited impact. Even though many experts believe that UK property prices are moving towards “overbought” levels it is perhaps the safe haven factor which may retain the interest of long-term investors.

As we touched on above, the Spanish market (and to a lesser extent the Portuguese market) was starting to show signs of recovery but these could be dashed with concerns about the short-term situation in Greece. Uncertainty is perhaps the greatest enemy of the investment markets because if even the worst case scenarios are known then investors can price these into their risk/reward calculations. At this moment in time nobody really has any idea about the potential consequences of a Greek withdrawal from the European Union therefore confusion will rein for some time to come.

Conclusion

While many thought that the immediate collapse of European property prices after the 2008 worldwide economic downturn was the bottom of the market, this may turn out to be a false dawn. Greece has already once been pulled back from the brink of collapse and ongoing political moves today seem likely to result in a full-blown withdrawal from the European Union. This uncertainty is obviously impacting investor sentiment and nobody really knows what kind of effect this will have on the euro or indeed the long-term future of the European Union itself. Confusion and uncertainty do not bode well for a stable and buoyant European property market!