The price of second homes in the Mediterranean could fall

The price of second homes in the Mediterranean could fall as a result of the credit crisis, a leading property expert has warned.
Michael Ball, a professor of property at Reading ¬University, England, and an adviser to the UK government, said holiday homes in many parts of Europe were exposed to a correction.
Not only had prices risen fast amid speculative interest and the easy availability of credit, but the supply of new flats had been increasing at a prolific rate.
Prof Ball pinpointed the Mediterranean and central and eastern Europe as being particularly “vulnerable” to falling prices.
“There are a variety of reasons in that in both of those areas, credit has been used and people have been very optimistic about long term values,” he told an audience of property professionals on Thursday night.
“There has been a boom, the market has been driven by foreign investors and now that is beginning to turn.”
The professor cited, as an example, Estonia, where house prices had dropped by an estimated 10 per cent in the past 12 months. “That will probably trickle through to other countries,” he said.
Savills, the estate agency, says the value of British-owned homes overseas have risen from £7bn in 1994 to £52bn ($106bn, €75bn) today through new purchases and rising prices.
The most common motive of buyers is to make a profit – rather than to have somewhere to go on holiday – according to a survey by the company. This speculation might have made some markets even more precarious. Some buyers might have overestimated the potential rental returns that they can get through letting these properties.
Prof Ball said many such markets were “risky” because there was no history of what fundamental values should be.
Ian Marcus, head of European real estate at Credit Suisse, said he believed there was “a large over-supply” of holiday homes in many European resorts.
The warnings come amid widespread price falls in the second home markets of Florida with some resorts seeing double-digit drops in the past year. The number of home sales in Florida dropped 43 per cent between the first and second quarter.
In Spain, demand for second homes on the Mediterranean coast has been softening for two years, according to estate agents. Many have reported a virtual standstill since May after a series of corruption scandals and a collapse in property¬related shares.
At least one mid-sized developer – Llanera – faces bankruptcy. One central bank official in Madrid said: “There is growing evidence that smaller real estate companies and house-builders who launched projects late in the cycle may have problems.”