In the second part of our property hot spot series, we examine how the glut of high-rise developments and holiday villas in the Mediterranean is forcing prices downwards and offering expat investment opportunities that seem almost too good to be true.
Bargains abound in the sunshine
The series of political and economic crises that have struck southern Europe over the past few years have had a devastating effect on Mediterranean property values.
In some parts of the region, residential property prices have dropped by up to 50 per cent since their peak in 2007. There is also a growing belief that values have hit the bottom in some places and that it is now possible to snap up discounted but highly desirable properties.
"There are said to be around a million unsold residential properties across Spain. The banks have foreclosed on a lot of properties and discounts of 40 to 50 per cent are common," says Charles Weston Baker, the director of property agents Savills' international department. "It is also still possible to get 80 per cent funding from the banks that have foreclosed on the properties in question.
"Now is a good time to buy. There is a sentiment in Spain at the moment that the residential property market has bottomed out and that, while values are not actually rising, things are looking up."
In Spain, prices have also been driven down by a legacy of high-rise developments built or planned before the economic crisis.
"A large amount of the development over the past decade in Spain has been overdone," says Robert Green, a director of Cluttons Resorts. "The market has been swamped with one- and two-bedroom high-rise apartments in peak tourist locations. This has resulted in an oversupply that will take some years to clear."
But real estate agents believe that the depressed market in countries such as Spain is hiding some very real bargains that can now be had at discounted prices.
"What is important to point out, particularly in Spain, is that all the tourist areas have been tarnished with the same negative brush of falling property values," says Mr Green.
But he adds: "If you look at those locations which have a unique aspect, the picture is very different. Some superb properties in prime locations ... have not been affected to the same degree."
Even in regions such as southern Italy, which have not been affected by over development during the last boom, prices have been depressed by the economic crisis to an extent where there are now real bargains to be had.
"Italy is a very different kettle of fish from Spain. Strict Italian planning controls have resulted in less oversupply of completed property than in Spain. Nevertheless, the weak market means that prices are still 20 to 30 per cent lower than in 2007," says Mr Weston Baker.
Apartments in historic buildings that have been renovated in locations such as Puglia in southern Italy can be had for under €50,000 (Dh263,150) and properties in need of renovation can be snapped up for less than €30,000. Some purchasers are now taking advantage of low property prices to buy previously ignored buildings such as country farmhouses, known as "masserias", and "trulli", old-fashioned conical roofed outbuildings traditionally used for agricultural storage.
"In Puglia, the best places to buy as investments or holiday homes are in or near Ostuni and Lecce," says Harrison D'Onofrio, Italy sales manager for the UK-based international property agents Hamptons.
Mr D'Onofrio reports that the most attractive properties are now often to be found in locations away from traditionally popular places such as Tuscany.
"In Calabria, we highly recommend Capo Vaticano and Tropea where buyers, mostly from the UK, Denmark and Sweden, are flocking to purchase. In Basilicata, Maratea and Matera are the places where most people are purchasing at the moment," he says.
"Each region has invested heavily in the last few years on their local airports to make them more efficient and attractive to cater to the new influx of Italian and European tourists and business people."
According to Hamptons, national and supranational government funding is also opening up previously neglected locations, where there are now bargains to be found. The European Union, along with local governments, is investing heavily to update the Italian road infrastructure, which Hamptons believes will attract more national and foreign investors in a few years time.
The recent political upheavals in Greece and that country's debt crisis have adversely affected the property market to an extent that has made international property firms wary.
"We are keen on marketing luxury resort properties in Greece but the market is very poor given the current economic and political crisis now affecting that country and so we have decided not to do so for the time being," says Mr Green.
But, like Italy, Greece is starting to offer properties in hitherto neglected locations in the rush to develop such popular tourist spots as Rhodes and Corfu.
"Large areas of Greece are still very undeveloped compared to Spain and Italy. Developers are now looking at locations outside traditional tourist hot spots. Around €350 million has been invested the Costa Navarino in the western Peloponnese mountains," says Mr Weston Baker.
But, although there may be low-priced bargains to be had in some parts of Greece, there are also luxury conversions in new locations. The Greek island of Kastos, for example, offers traditional-style stone farmhouses designed to have a high level of privacy with prices starting around €700,000.
But despite the high price tags of some developments at the top end of the property market, any potential purchaser who has not visited the Mediterranean in the past few years will probably be pleasantly surprised. Bargains abound across the region making it a buyer's market with plenty of room for price negotiation.
According to Mr Weston Baker: "The market in Spain is generally very thin at the moment and there are owners who need to sell, be they local or foreign. They often accept offers with a 40 to 50 per cent discount."
With Mediterranean properties now available in some areas for as little as €20,000, many purchasers are tempted to buy older properties in attractive but previously ignored locations. The refurbishment option, however, brings with it some advantages and some disadvantages.
According to Mr Green: "Redeveloping an older rundown property is an option that brings with it the advantage of not having to buy an unfinished property off plan. It means you can have a good look at the property before buying. The buyer can also control how much cash is spent on the refurbishment."
Another plus is being able to choose a romantic location and develop a property that precisely suits your personal needs. As a holiday home, such projects can work well. As an investment, there may be drawbacks. One family's ideal holiday home may be too individualised to appeal to the general market. Unless professional advice is sought, there is a danger some of the improvements made may represent a largely wasted investment in terms of the property's overall market value.
And, although there are now mouth-watering bargains to be had across the Mediterranean, investors should approach with caution. There can be good reasons why older rundown properties have been discounted other than the financial crisis.
Purchasers should also always seek professional advice before buying an overseas property. This is even more important when considering converting a historic building in a country such as Italy, because there may be strict local planning regulations.
"The pitfalls include taking on a project in another country with different property and tax laws. Professional advice should therefore be sought wherever possible," says Mr Green.
But even professional advice may not be enough to make up for a lack of local knowledge. Negotiating with building contractors can be a nightmare anywhere, but southern Europe has a particularly poor reputation. Relations with building workers in locations such as the south of Italy can be further complicated by linguistic differences.
"I would recommend potential buyers to start learning basic Italian words and phrases to fully appreciate this part of the world, as you will find that in the south very few people speak English," says Mr D'Onofrio.
Buyers should also make a thorough investigation of what is available in several regions, unless there is a reason they wish to buy in a specific location. Prices still fluctuate heavily across the Mediterranean. While there may be bargains in locations such as mainland Spain and southern Italy, places such the Côte d'Azur in the South of France have some sea-view properties now being marketed with a price tag of around €30 million. Anyone searching for a bargain should spend time looking around.
Even when a real bargain can be found, investors should not expect to make a fast buck. The days of what agents call "flipping" a property, buying it for a quick resale with a year or two, are over. Even in the case of what appears to be an irresistible bargain, buyers should plan for a minimum investment period of five years.