Half of Spain’s real estate agents went out of business in 2007. In Ireland, where home values had nearly tripled in a decade, an estimated 10,000 condominium units in Dublin were vacant late last year.
Although markets in many countries remain strong, in others, the woes of residential real estate in the United States are being mirrored. In some places, the real estate weakness is linked directly to the U.S. subprime mortgage collapse. Then there are the places where problems are the result of homegrown ills similar to those afflicting America—risky loans, rampant speculation and overbuilding.
“The impact of the credit crisis in the United States certainly has been substantial,” said Richard Kelly, head of homebuilding and construction for the British consulting firm BDO Stoy Hayward. “The stock prices of the house builders have taken a significant hit. There’s a lot of nervousness out there.”
Keith Barket, senior managing director for global money management firm Angelo, Gordon & Co., said: “I would say in some aspects it isn’t so much a spillover from what has happened in the United States, as it is other parts of the world are suffering from the same dynamics that have arisen in the United States.”
Yet while real estate sales and prices have slowed in much of Europe, the downturn in most European countries has not been as sharp as it has been in the United States. In Asia, markets have generally remained sound, and there are other pockets of strength across the globe, including some developing countries.
Towers of strength
According to online research firm Global Property Guide, Shanghai and Singapore recorded house price increases of nearly 28 percent in the first three quarters of 2007. Double-digit price increases were also recorded in most of Australia in 2007. Meanwhile, the Philippines, Colombia, South Africa and Hong Kong all had increases of more than 10 percent.
“We are still seeing an increase in prices in central Europe—Switzerland and Germany are doing well—and a significant increase in Eastern Europe,” said Chuck Lemire, the Vienna-based chief operating officer of RE/MAX Europe. “Prices have increased 10 to 15 percent in 2007 in Romania, the Czech Republic and Slovakia.”
According to Global Property Guide, Bulgaria recorded the world’s strongest house price growth last year, at 31 percent.
Real estate in Russia also remains solid, according to John Forbes, director of the London real estate office of PricewaterhouseCoopers. “With oil at $100 a barrel, money is flowing in for the oil-rich countries,” he said.
Home sales and prices have also been positive in Canada, with the exception of southern Ontario, which has suffered from weakness in the auto industry.
“We’re off on a record-breaking year in prices and volume,” said Don Lawby, president of Century 21 Canada. “I keep thinking the problems will reach across the border, but they haven’t. Usually, when the United States catches a cold, we get pneumonia.”
Areas of trouble
The reverberations from the U.S. subprime crisis have shaken credit markets around the world. Britain’s biggest shock came in September 2007, when Northern Rock, one of the country’s leading mortgage lenders, was unable to meet its obligations because of the subprime-triggered tightening of credit markets. A run on the bank was halted only after the British government promised to guarantee deposits.
In fact, tighter credit has been a drag on real estate all over the world.
“What we have seen clearly is that the lenders are tightening their criteria for lending,” said Simon Rubinsohn, the chief economist of the London-based Royal Institution of Chartered Surveyors. “They are a lot more cautious.”
An even broader concern is that because of the pivotal role the United States plays in the world economy, a U.S. downturn could spark a global economic plunge.
“The real fear over here is the United States tipping into recession,” said Forbes.
Areas of the world where a run-up in prices prompted overbuilding appear to be the most troubled real estate markets today. Spain and Ireland are prime examples, according to analysts.
“Ireland had seen astounding gains,” said Rubinsohn. “They are under pressure now, and real estate is coming down.”
Said Barket, “Spain sold more homes over the last five years than all of Europe. Much of this was second homes, and it became a matter of speculation. It’s crashing right now.”
In Mexico, Central America and the Caribbean, the market for second homes appears mixed, according to analysts. Some areas clearly have been affected by the troubles in the United States, while others appear insulated.
“There was a tremendous amount of speculation,” said Mitch Creekmore, senior vice president for Houston-based Stewart International and author of “Cashing in on a Second Home in Mexico.” He added, “Arizonans were taking money out of their houses and investing in a house in Mexico.”
With home equity lines of credit drying up in the United States, second-home markets in Mexico tailored to those buyers have struggled, according to Creekmore. But more upscale areas, including Puerto Vallarta and Los Cabos, have remained strong because buyers for those properties are not dependent on credit markets, he said.
Indeed, throughout the globe, real estate sought by
the very wealthy is little affected by the credit crisis, according to brokers who specialize in this market. “Many of the very expensive places, priced in the double-digit millions, are not even financed,” said Rauert Peters, chief operating officer of Engel & Völkers, a European premium real estate broker.
Shaun Osher, chief executive officer of CORE Group Marketing, a New York-based brokerage, said, “It seems the world is becoming more segregated between the haves and the have-nots, and it shows itself in the real estate market. People with money are still buying property.”