Emerging, emerged or back in hiding? - 18 May 2009

Posted by Paul Collins No comments

The overseas property market has taken something of a battering in the credit crunch. Brits are worried about whether they will be able still to afford their own main homes with mass redundancies, wage cuts and other pressures edging into their thoughts at all times. There is barely time even to consider the idyll of buying a bolthole overseas to get away from it all – although times of economic hardship do tend to prompt more people to emigrate than at other times.

Those buyers who are still out there are being treated to almost the undivided attention of developers and agents so desperate for buyers they will offer all manner of extras along the way. Most of them are sticking to the ‘safer’, established markets – placer where, despite the severe downturn in sales and new projects being felt by agents, there is more than likely to be a good recovery in property values at some point. Think of the favourite holiday destinations for Brits and you won’t be far off.

So where does that leave the vaunted ‘Emerging Markets’, those places not many of us could have placed on a map a couple of years ago but we believed were the next big thing in investment destinations? Well, it depends to a large extent on how much they ‘emerged’.

Take Bulgaria for example. In Sunny Beach, the investment property market developed so quickly that developers couldn’t keep up with demand. However, when it came time for most of the properties to be delivered to the market, the promised flood of tourists failed to materialize and the resale market was dead as there were so many properties for sale by those looking to ‘flip’ for profit. The collapse in prices in this part of Bulgaria (which is by no means along among emerging markets to suffer this fate) had less to do with the global recession and more to do with a huge oversupply killing the resale market and a lack of renters to fill the properties.

Another darling of the investment property market, and one that was on the scene even before Bulgaria, is Croatia. Perhaps by design, perhaps through circumstance, and most likely through a combination of both along with a healthy does of chance, Croatia never embarked on building projects for the overseas property market in the same way that Bulgaria did. Firstly, most buyers were looking for the more ‘authentic’ properties in the older town and city centres, rather than generic new-builds to rent out. Also, the degree of red tape involved in building new projects in Croatia meant that there were huge obstacles and hoops to jump through in order to get planning consent. The result is a market that never became overheated in the same way that other Emerging markets did, and so has not suffered the same crash that has been seen elsewhere. While the market has doubtless suffered in the credit crunch, there is no reason to think that it won’t recover strongly in the future.

There is another kind of Emerging market that should be considered, and that is the market that has yet to develop significantly – or to put it another way, a market that is still emerging. One example of this would be Albania, where there was some interest in the property market as the first signs of the global recession were beginning to show. However, the property market for the overseas buyer in Albania was limited to a few developments, no significant price inflation was experienced and therefore the property market did not get overheated to the same extent as other emerging markets. The result of this in the current climate is that the property market in Albania should be in much the same shape when it emerges from recession as it was before. No significant losses will have been incurred for either developers or investors, and there will still be opportunities for gains when the property markets pick up once again in the future.

Thus, it is difficult to discuss the ‘emerging markets’ as a single entity – there are now several different tiers of emerging markets, which will all fare differently through the current economic turmoil.

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