People often stress location as the most important factor that determines the value of a property. In fact, where a property is located is pretty much all that matters.
Since prices are high in traditional high-demand areas new areas for investment in real estate have emerged such as: Morocco, Bulgaria, and other “less touristy” Spanish Coasts.
At first glance these areas appear to be ideal for investment purposes and the following reasons are given:
1) Underpriced. When purchasing a property you get what appears to be fantastic value for money.
2) Less crowded. Since these up and coming locations are more remote (in most cases) they are usually much less popular among tourists and therefore you won’t be spending time in traffic en route to your holiday destination and while there, you probably won’t have to wait in line for your ice cream either.
3) Emerging markets. Since the locations usually are very pretty and the potential is “untapped” the future looks promising indeed. Ideal for early investment since price is low. Remember: Buy low – Sell high.
So what do I think is wrong with these “emerging” real estate markets? Well allow me to explain.
Property prices move up due to two factors: demand and inflation. In a property market where supply and demand are equal you can have prices still increased based on the fact that the value of money tends to decrease over time. This is observed in many european cities and towns where, although populations haven’t increased and new construction has been slow, the price for houses is very high. In essence, the value of the property holds and the value of money goes down so the price appears to increase.
When demand is a moving factor for price increase it is usually due to the fact that there is a problem with the supply of housing. This can be seen in any major european city where properties located nearer to the commercial hub cost far more than those that are further away. Since supply of new housing near the centre is limited or none existant the value increases since people would rather be close to work.
When it comes to second homes and vacational property the same rules apply. So what’s wrong with Bulgaria for example?
There will be a long term demand shortage. Early investment profits can be made since a second wave of investors purchases at a slightly higher value due to initial hype. But at some point a peak is reached and then you need end users for those properties. People who will actually want to pay the final price and live in or rent that property.
Certainly Bulgaria offers an attractive place to vacation for some. There is skiing and beaches. However, the summer is short and skiing is a limited market. If thousands of apartments are built at these locations, when it’s all said and done, who is going to occupy them and at what price?
But I don’t have to go as far as Bulgaria to make my point. I see that happening here and now on the Costa del Sol. An established, luxury service oriented and extremely warm and sunny part of Europe with tremendous demand (millions of tourists a year).
There are some areas that are fully booked and very expensive and others that are empty and struggling to find people that will rent or buy and these areas are just a few miles apart. And once again – location. We have a development in Duquesa Marina that is fully booked (and quite pricey) and 1 mile away slightly inland a cheap one that is half empty. The quality of the apartments is very similar, but one is on the beach and near a sports marina with restaurants and bars and the other is one of dozens which isn’t walking distance of anything.
This relates to Bulgaria in a similar fashion. It is a different location and a different product. When things get overbuilt you will need to have a strong demand to keep the prices up so the last wave of investors can make a profit. This will not happen. The end user market there is very limited when compared with other traditional european holiday and second home destinations. Ask yourself this, would you want to retire to Bulgaria?