SPAIN: sunburn factor ****
Spain's biggest developers have built nothing for the past six months. Why? At the market's peak, they were delivering half a million houses a year. In 2006, a million new homes were started. Sadly, many of these may never be completed, as the impact of the credit crunch and yawning oversupply has driven developers to the wall.
According to a report entitled 'The Cement Graveyard' in Spanish newspaper El Pais, there are just under 1m newly developed Spanish homes on the market, and half of these are on the coast. At today's sales rates, it will take five years for these to be absorbed – and far longer if one considers the glut of resale properties overwhelming the market.
Mark Stucklin, of the independent advice website Spanish Property Insight, estimates that there are a further 2m unwanted holiday properties languishing on the resale market. "My opinion is that property prices have fallen by 25 to 30 per cent since the peak, and some costal properties in particular areas would have fallen much further," he says.
Those renting out properties to cover mortgage repayments are also suffering as oversupply and a slump in tourist numbers has hammered rental income. "I don't see where rental yields are going to come from in Spain," says Ray Withers of Property Frontiers. "There's so much development, I am struggling to see it."
However bad an investment, those who have actually taken possession of their Spanish property can consider themselves more fortunate than thousands of off-plan purchasers left in limbo by insolvent developers.
"When a developer goes out of business, they've got your deposit and stage payments, and you have just got a piece of paper," says Mr Stucklin. "Most contracts should be covered with a bank guarantee, but there is all kinds of wriggling going on."
The Spanish Property Map on his website highlights huge numbers of projects in trouble, ranging from developers in administration, illegally-built settlements awaiting demolition and, staggeringly, developments unable to be connected to utilities.
"The boom was the worst thing that could have happened, it encouraged bad practice, corrupting everything under the sun," he says. And the horror stories come thick and fast. Developer Aifos sold off-plan homes without obtaining the correct building licences, and now faces 891 separate legal actions demanding repayments of £590,000 in deposits – many from British buyers. Operating at the cheaper end of the spectrum, none of these homes were even completed.
And Midlands-based Ocean View Properties went into liquidation earlier this year with debts of £42m, leaving hundreds of investors who had bought off-plan properties on the Costa del Sol chasing lost deposits of £80,000. Again, these properties were never built, allegedly due to planning irregularities.
Buyers who need to sell up face an array of problems. The lack of a secondary market is beginning to dawn on many, who have to drastically reduce prices to sell, only to be clobbered again by high transaction costs. Spain's 18 per cent capital gains tax is theoretical for many, but estate agent fees are typically 5 per cent of the sale price, local taxes 2.5 per cent, and a further 3 per cent is retained by the Spanish government if money is repatriated abroad. Add on currency costs, bank charges and fees for notaries and lawyers, and sellers can end up seriously out of pocket.
Still, this is better than being repossessed. From the date of mortgage default, Spanish banks will apply a penalty interest rate as high as 20 per cent. And don't think you can hand back the keys and do a runner.
"There are plenty of people I know of being pursued for their Spanish mortgage debts in the UK," says Mr Stucklin. "In some cases, people who have absconded have seen the value of their loan go up by 50 per cent with penalty rates and fees, and lenders have every legal right to go after you under EU laws."
BULGARIA: sunburn factor *****
Sunny Beach, Bulgaria's infamous Black Sea resort, is aptly named – it has to be one of the most overheated property markets in the world. Buyers who couldn't afford Spain or Florida flocked to Bulgaria, and its coastline is now blighted by empty towers of cheaply constructed self-catering holiday apartments.
Property prices were rising at the unsustainable rate of 30 per cent a year – driven not by resales, but an influx of buyers from the UK and Ireland who thought they could get rich quick. Now the bubble has burst; the mortgage market has collapsed, and flats are changing hands for 75 per cent less than their original selling price.
"In 2004, the Bulgarian boom was just starting and I did the stupid thing – putting down a deposit on an off-plan development," says ex-lawyer and Bulgarian property expert Rachel Gawith. "Once I'd actually flown out there and saw how overdeveloped the area was, not to mention the problems with construction, I took the developer to court to get my money back."
Her experiences, detailed in the book My Bulgarian Property Nightmare, did not put her off. She has since built a successful business renovating rural Bulgarian properties, but finds that she is increasingly contacted by British buyers in trouble.
"Tens of thousands of apartments have been developed in Bulgaria and the infrastructure is just not there to support them," she says. 'There is no resale market, and thousands of British and Irish buyers are all trying to sell. Plus, I don't know anyone who has managed to rent anything out. The problem is, you can get a package holiday deal for £400 including flights and stay in a hotel."
Many people she speaks to have remortgaged at home to get the cash to buy in Bulgaria, and others have put their life savings into a property. But the situation is worse for those who have borrowed to buy, and are now struggling to meet the repayments.
Ms Gawith has noted a recent rise in "acquirement firms" making ridiculously low offers to distressed sellers. "People who paid £50,000 to £60,000 for an apartment are routinely being offered £15,000 or less, but they are only interested in certain developments," she says. "Even if people have a mortgage of £40,000 to £50,000 they will take it, just to get out."
For many, the Bulgarian property dream has turned into an unwieldy UK debt.
FLORIDA: Sunburn factor ****
The Brits have also been busy buying in Florida, where independent relocation consultant Andrew Bartlett estimates 70,000 UK nationals have bought second homes in the last decade, with many developments specifically targeted at British investors.
"Few people have become wealthy," he says. "The majority have shown naivety and sadly gone for a sucker-punch and lost everything – and the Brits are the worst affected." He blames the British attitude that property is a 'gold plated' investment.
Mr Bartlett estimates that Florida property prices are now 40 per cent below their peak, noting that rampant oversupply means that some properties are being sold for below their building costs. The value of development land has fallen by more than 90 per cent in some instances. "So many of these developments were aimed specifically at the British," he says. "They come over here, it's all sunny, there's a wonderful brochure and the agents give them a really nice breakfast. So they buy an off-plan property, take out a hellishly high mortgage, and subsequently find they can't maintain the number of rentals required to meet the payments. It beggars belief."
On certain developments, the majority of properties are being offered for resale by desperate buyers. "Who's going to buy them?" asks Mr Bartlett. "Not other Brits, and not local people, either, as these developments are nowhere near schools or amenities. In my experience, US banks will no longer lend to the British as so many have handed the keys back and done a runner. Certain banks now believe it is worth pursuing unpaid loans in the UK under UK law."
For those tempted by the infamous 'bus tours' of repossessed properties at bargain basement prices, hold your fire. "I keep reading headlines saying the bottom of the market has been reached. In reality, we won't hit bottom until the oversupply and bankrupt properties sell, and I can't see that happening inside two years."
DUBAI: Sunburn factor *****
Total meltdown is the best description of Dubai's property market. Deutsche Bank estimates that property prices have halved in the past 12 months, and could fall a further 20 per cent this year. The downturn has lead to an exodus of foreign nationals, which is depressing prices and rental demand even further, and UBS now predicts that one-third of Dubai's residential property stock will be standing empty by 2010.
Still tempted to buy in at a bargain price? You'll need to be a cash buyer. "There are no mortgages available on flats or apartments in Dubai at all," says Clare Nessling, operations director of overseas mortgage broker Conti. "You might get a 50 per cent loan-to-value deal on a villa, but that's it."
Dubai's first ever public property auction was held a few months ago – but nothing sold, as none of the properties met their ambitious reserves. The welter of distressed stock on the market means that potential buyers are overwhelmed with options.
And for buyers whose off-plan purchases have yet to complete, there seems little hope. "People tend to put 10 per cent down, and pay the rest on delivery," says Charles Weston-Baker, head of international property at Savills. "I think a lot won't see completion. The market really has come to a standstill."
FRANCE: Sunburn factor *
Its close proximity that means France is the most popular destination for UK second-homers by far. The strong euro has slowed the market, with average prices falling 10 per cent in the past year, but France has far less investor-driven new-build development, and nowhere near the levels of oversupply plaguing Spain.
"France is always going to be Cornwall to the Brits," says Ray Withers, managing director of Property Frontiers. "The market may have slowed, but there will always be latent demand. Although you need to have decent net income, it is still possible to get mortgage deals from reputable lenders, and developers are willing to offer good discounts on standing stock."
"You can still get 100 per cent mortgages in France," confirms Clare Nessling. "As prices have held up, we are doing quite a lot of remortgaging in France, where people are pulling euros out of their property to pay off their UK debts."
CYPRUS: Sunburn factor ***
A Brit-fuelled property boom has gripped Cyprus, with 70 per cent of all foreign buyers on the island hailing from the UK. Unsustainable price rises of 20 per cent a year are now firmly in reverse, exacerbated by a glut of new developments. According to the Cypriot Land Registry, there were just 842 property sales in the first half of 2009, compared with 3,800 a year previously.
The Central Bank of Cyprus estimates that the Cypriot mortgage market accounted for a colossal 49 per cent of its GDP in 2008 – up from just 6.8 per cent of GDP in 2005. For Brits who borrowed from local banks, variable rate mortgages are the norm – a situation not helped by interest rates in Cyprus, which are among the highest in the eurozone.
