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Analysis of the property markets and where they are likely to be going. -- Buying property in the EU.

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Buying Property in Europe?

I try not to write too much about the property markets in Europe as the story is boringly repetitive, and tediously depressing. Estate agents are no doubt busily talking their book, and saying that now is the time to buy, but the obvious fact (at least, obvious to anyone with a grain a common sense) is that prices are still going down across Southern Europe, and they will continue to go down.

There is much talk about how the French in particular are swarming to buy houses in the Algarve to escape the economic calamity that is France. Unfortunately, that relates only to a few very rich French people who simply want a tax exit. It doesn't relate to the broad market.

Indeed, the whole issue of the legality of certain properties is still rumbling on after various municipalities issued building licences for zones that were not in the building zone at all. Have a look at the accompanying article on the subject from The Algarve Daily News:

Up until the beginning of this year the focus was on the lame ducks in the EU; Greece, Spain, Portugal, Italy. Things, however, have changed. Not only has France joined the lame ducks (as I warned at the end of last year), but Germany as well is heading that way. There doesn't seem to be any economy within the Eurozone that can hold up the currency. Recently The Economist reported:

Their collective GDP stagnated in the second quarter: Italy fell back into outright recession, French GDP was flat and even mighty Germany saw an unexpectedly large fall in output. [...] Meanwhile, inflation has fallen perilously low, to around 0.4%, far below the near-2% target of the European Central Bank, raising fears that the zone as a whole could fall prey to entrenched deflation. German bond yields are hovering below 1%, another harbinger of falling prices...

Despite the clear need for deep-rooted economic reform, this has not happened. Not only that, the political union is so weak that it is near impossible to get support from voters.

The perverse part of it is that the European Union, and the euro currency, were supposed to be the agents of much needed reforms. The aim of the political union was to make less competitive nations – places such as Greece, Spain and Portugal – more competitive, creating stronger local markets for the likes of France, Germany and Britain.

Instead, these less competitive nations took the cheap money made possible by the single currency, and went on a self-destructive credit binge, the effects of which are still being felt throughout the continent. These effects will not go away in a hurry. There are those who believe we have another twenty years of this current scenario, in short, following in the footsteps of Japan. It is not a scenario conducive to investment.

The next question is: will the European Central Bank start to print money? It looks likely. And so the problem of horrendous amounts of debt will be subjected to even more debt, which will act as a drag on the economies of the Eurozone for a decade or more, unless the whole system blows up before then.

Sadly, it looks as tho Europe is staring into a bleak future.

Add to that the slowdown in Asia's largest economy, China... that economic growth in South America's largest economy, Brazil, is flatlining... and that there is a serious downturn in Russia, where GDP growth slowed to 0.8% in the second quarter... and it's very hard to construct a bullish case for global growth. That means it's pretty hard to envisage a bullish scenario for real estate.

And what am I doing? You may well ask. Currently, I am living in hotels. They are cheap, especially when you stay long term. You get servants to do everything you need. The traditional curses of home life are no more: no washing up, no shopping, no cooking, not even changing the bed linen. I'm getting hooked on this. And when I want a change of scene I simply move somewhere else.

I simply love the fact that I dont have to clean the swimming pool, or mend anything that goes wrong, dont have to pay rates, or deal with maintenance. Life has become quite charming. I did some sums a couple of years ago, and reckoned that living this way was cheaper than having finance tied up in a home, with all the attendant costs, especially if you add in the personal service, such as gardeners, cooks, washer-uppers, and plumbers, and so on.

As far as I'm concerned deflation can stay forever. I'm enjoying it. I'll buy real estate when deflation changes to inflation and folks get caught out with too much debt and rising interest rates, and the market is flooded with cheap repossessions. I can wait.


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