Eastern Europe Property

Anybody who’s anyone in Europe these days is buying a vacation retreat. And they’re not doing it close to home. Think [tag]Croatia[/tag], [tag]Bulgaria[/tag] or [tag]Morocco[/tag].

By Stryker Mcguire
Newsweek International

A year and a half ago, Erich Schmidt had a bright idea. “Why pay other people to rent a house for holidays,” he thought, “when I could just buy a place myself?” So it was that the London recruitment consultant ended up with a vacation retreat in Croatia. Embroiled in a war for independence between 1991 and 1995, Croatia and its stunning Adriatic coast have only recently become safe havens for investors like Schmidt. He found a seven-bedroom stone house on the island of Brac for €230,000, a bargain by British standards.

Today he would not consider selling it for less than half a million. And he’s snapped up seven more properties in Dalmatia that he rents out to holidaymakers.

Schmidt is but one of a growing cohort of Europeans who are buying second homes in other countries. The trend is particularly pronounced among northern Europeans looking for a place in the sun. Along the Mediterranean “sun belt,” stretching from the Greek islands to southern Iberia, second homes make up 10 to 15 percent of total national housing stocks. The strongest markets are, unsurprisingly, France and Spain, the world’s first and second largest tourist destinations. But demand is so strong (and the investment prospects so promising) that the hottest hot spots today are countries like Croatia and Bulgaria. “The growth has been so spectacular that it’s difficult to chart,” says Sébastien Duquesne of UCB International Buyers in Paris.

The days are long gone when owning a vacation home was only for the rich. Lifestyles once reserved for the glitterati have been democratized. Caxton FX, a foreign-exchange company in London, estimates that 750,000 Britons now own second homes on the Continent. The typical London cabdriver is likely to own a place in Spain. The same is true of a German teacher or a Belgian middle manager, though the destinations may vary. Prosperity has more than trickled down: with per capita GDP in Western Europe rising by 50 percent over the past decade, the effect on second-home purchases has been marked. Caxton estimates that the market has grown, on average, 16.2 percent annually since 2001. Brits, Germans, the Dutch and others bought 80,000 to 100,000 second homes in Spain last year and 45,000 to 60,000 in France, according to UCB.

Ireland offers perhaps the most startling example of how rising prosperity has transformed the second-home market. According to the Organization for Economic Cooperation and Development, the Irish have become the second wealthiest people in the world, after the Japanese, largely on the strength of rising property values. In 2005, UCB reports, Irish buyers acquired between 7,000 and 12,000 second homes in France and Spain. For a nation of only 4 million, this is a whopping statistics. (Buyers from Germany, population 82 million, acquired between 17,000 and 24,000 homes in the same two countries.) Roughly half those purchases would be considered “speculative”-”bought, in other words, purely as investments rather than for personal use. And what’s true of the second-home market for Dubliners is true for Europeans generally.

For the working classes on up, says Caxton CEO Rupert Lee-Brown, “the whole thing is suddenly within reach.”

He means that literally. With relaxed immigration and border controls under the Schengen Agreement of 1985, says Iain Begg of the London School of Economics, “we became much more inclined to regard ourselves as citizens of Europe. That made it more attractive to wander across borders.” Wireless communications and high-speed Internet connections have made staying in touch easy. No-frills airlines have made wandering cheap, and their rapid expansion both feeds off and fuels the second-home market.

Ryanair and easyJet flew 67 million passengers last year and plan to open 58 new routes around Europe by the end of the summer. It’s no coincidence that a major advertiser on the Ryanair Web site is Majestic Worldwide, a resort developer offering properties in Spain, Portugal, Croatia and Bulgaria. Majestic consultants will happily meet arriving passengers at the airport and give them a tour of homes for sale.

The second-home market is growing with such astonishing speed that it’s hard to keep up. Prior to 1990, only a small number of Germans owned second homes in Sweden, for example. By 1991 the number had reached 1,500; it now stands well over 10,000. In France, 14,000 homes were sold to foreigners in 1994; the number was 75,000 in 2005. In Spain: 35,000 in 1997; 135,000 in 2005.

Today the Czechs are big buyers in Slovenia, one of the most naturally beautiful of European countries. Russians are buying in the architecturally renowned Baltic beach resort of Jurmala, Latvia. Newly independent Montenegro, once the playground of celebs like Richard Burton and Sophia Loren, is attracting attention because the no-frills airlines are thought to be coming soon. Already the scenic port of Kotor, just south of Dubrovnik, has all but been taken over by Germans, Italians and, most recently, Russians. So many Brits congregate in Portugal’s Algarve that British political parties solicit contributions there. So many non-Gaelic speakers have invaded Ireland’s Gaeltacht “the Irish-speaking regions” that linguistic preservationists are worried. Such is the wildfire-like spread of European second-home ownership that the really cutting-edge destinations, such as Morocco (20,000 to 25,000 in 2005) and Turkey (10,000 to 15,000), are at Europe’s farthest fringe, if not outside it.

The Brussels bureaucracy that so many Europeans love to hate is one of the great driving forces behind the boom. Aside from facilitating travel and allowing Europeans from one country to buy property in another, the EU has doled out hundreds of millions of euros in “structural funds” – money that goes to new members for infrastructure improvements. This largesse has transformed countries that once lagged behind their neighbors. In Spain and Ireland, EU funds turned patchy roads into sleek superhighways.

The makeovers, coupled with natural advantages like climate, have had a huge impact. In Spain, the number of second homes has increased by at least 75 percent since 1986, when the country became a member of the EU. Though the EU can’t yet dictate the weather, perhaps similar benefits will accrue to newer members like Poland. Warsaw and Gdansk are already attracting buyers, helped by generous home loans for foreigners – 2 percent interest, no money down.

It’s tempting to see the second-home phenomenon as the European Dream come true. As Germans buy property in Ibiza and Swedes in Provence, some speculate, a sort of United States of Europe will come into being. But that’s probably unrealis-tic. Across Europe, even as second-home ownership has soared, so has anti-EU sentiment. The drivers behind second-home ownership are personal; they’re about family, fun and potential financial gain.

Six years ago Nick Ford, 45, a former bond broker in London’s financial district, moved his family of six to Locarn, in Brittany, in search of “quality of life, less stress and simply because we wanted to live in France.” A decade or two ago, he says, “we would have been an oddity.” But no more. Today he’s a real-estate agent who sells about three homes a month.

Such transitions are not always as smooth as the Fords’. “For 90 percent of the Brits who come here, language is a problem,” says Ford. “It can be isolating,” he adds, often accompanied by feelings of depression or boredom. Yet that, too, is changing as whole towns essentially become transplanted communities. “There are luxury developments in the Algarve where you would be hard-pressed to hear a non-English or -German accent from a resident,” sniffs an Anglo-American businessman who lives in London and owns a second home in Tuscany. Indeed, the latter region is often called Chiantishire, for the number of Brits who holiday there. In some places, a new cultural stereotype has taken hold – “the Ugly Second-Homer. These closed-in communities, says the businessman, “are usually attached to new golf courses and inhabited by the same bankers and industrialists from the City of London who see each other at work 11 months of the year. Then in August they all troop off on British Airways to Faro, in Portugal, to sip vinho verde by their pools.”

It would be unfair to lump all buyers into this category, of course. For one thing, many people love their second house precisely because it’s not just like home. “The first wave of English people revitalized the [Lot] region [in France],” says Hubert Patricot, a Parisian executive, who was born there and now owns a second home there himself. “They’re there to blend into the countryside, canoe on the rivers, hike, eat the local foods.” And clearly, in most places the infusion of relatively wealthy foreigners is welcome, especially in less-developed regions. “The local people welcome foreigners because they bring money,” says Boyko Borissov, the mayor of Sofia, Bulgaria. “I don’t see any clashes or obstacles.”

Particularly welcoming are would-be home sellers who’ve seen their properties rocket in value as Western bargain hunters head farther east. In the past year alone, prices in Bulgaria have climbed at least 25 percent while remaining among the lowest in Europe.

Derelict farmhouses in the mountains of Slovenia now carry for sale signs in English and Italian. Demand is brisk for stately apartments on the 19th-century boulevards of Budapest or homes close to Lake Balaton, long a favor-ite summer resort with native Hungarian holidaymakers.

A more serious concern about the second-home boom is the impact on the physical environment. Paul Adamson, the Brussels-based founder of E!Sharp magazine, which covers European affairs, has had a holiday home in Montauroux, in France’s Var region, for eight years. Over time, the look and feel of the place have changed, for better or worse. Where he once was lucky if he could find a copy of the International Herald Tribune, he now has a choice of all the London papers. But out his window, he said in a phone interview, “I can see a brand-new Four Seasons Hotel being built right now.” A looming hotel here and there is nothing compared with what’s happened in Spain. According to a Greenpeace report in July, overbuilding is turning the country’s 8,000 kilometers of coastline into a “deep ulcer.” In some areas, with three quarters of the shoreline fully developed, there’s simply not much coast left.

These are all problems Europeans must learn to live with. The second-home phenomenon is destined to mark the 21st century. After all, there was a time when the British, except the elites, didn’t travel abroad. The Victorian workingman got one week off each year and took his family to Blackpool. Then along came package tours and the possibility of a parole from gray skies. The percentage of Britons holding passports soared from 24 percent in 1984 to 80 percent today. Closed parts of Europe opened up, from Franco’s Spain to Eastern Europe and the postwar Balkans, and countries like Ireland and Estonia began experiencing a degree of prosperity that Greece, say, has never known. New technologies of travel and communications will only accelerate these historic changes. For ordinary Europeans, owning a second home will soon no longer be the latest hot trend. It will be a way of life.

With Karla Adam and William Underhill in London and Ginny Power in Paris