Property prices in sun-kissed hot spots in Europe are in meltdown, according to economists, and the recent interest rate cut by the European Central Bank (ECB) could send them lower still.
So is this a once-in-a-lifetime opportunity to pick up that dream villa, or will other factors, such as the falling pound, keep that idyllic place in the sun out of reach?
House prices in Spain, which has a million-strong glut of unsold properties, have already fallen by a third since the beginning of the recession, but will slide by a further 10pc, Goldman Sachs has predicted.
A picture of property markets on their knees, damaged banking systems and a weak economic outlook is persistent across favourite destinations for British holidaymakers and expats.
And the ECB’s cut in interest rates to a record low of 0.5pc, along with its threat to punish banks for hoarding cash, has been dismissed as too little too late to turn around these ailing dinosaurs any time soon.
Albert Edwards, a market strategist at Société Générale, the bank, said: “The eurozone is now only one short recession away from Japanese-style deflation.”
Ben May, a European analyst at Capital Economics, added: “There is a clear risk that house prices have further to fall in Greece, Spain, Italy, Portugal and Cyprus. Households have been hit very hard by the increasing austerity programmes and the need to reduce debts. Credit remains severely restricted.”
He predicted that the French economy would shrink by 1.5pc this year and the same next. Spain will decline by 2.5pc this year and by 1.5pc next, he said.
Mr May added: “It is a similar picture across many parts of Europe, and it will be some time before there is much hope of a return to growth, despite last week’s cut in interest rates.”
But a property price slump may not be enough to attract British investors, not least given uncertainties on the tax front. Taxes have already risen in France, although the prospect of a 75pc wealth tax was abandoned after celebrities such as the actor Gérard Depardieu very publicly left the country in protest.
It is anyone’s guess what pain lies ahead for taxpayers in locations such as Greece and Cyprus.
The prospect of a further weakening of the pound will probably deter many would-be British buyers from taking the risk. Sterling is expected to continue weakening against the euro, leaving British buyers still needing to find more pounds to fund a purchase, even as values slump.
Peter O’Flanagan of Clear Currency, a foreign exchange broker, said: “The currency has already lost a lot of value compared with the euro, although it has gained a little ground over the past couple of months.
“However, if Mark Carney, the new governor of the Bank of England, goes all out for growth, as expected, sterling will weaken further. So whatever you gain through property price falls, you might lose from currency swings.”
Charles Weston-Baker, head of international residential at Savills, the upmarket estate agent, also introduced a note of caution, warning would-be buyers not to expect to pick up a luxury Costa hideaway for a pittance.
He said: “Yes, there are unsold developments, and many distressed sales. But these tend to be unattractive developments, which were never an appealing proposition. Elsewhere, there are significant numbers of owners who would like to sell, but will do so only if they can get a price they are happy with. Otherwise they will hold on.”
A property price index published by The Economist compares values with typical rents and wages and plots the figures against the historical norm. The most recent of these studies suggested that prices in France were 50pc too high compared with rents and 35pc too high against wages. For Spain, the respective figures were 19pc and 21pc.
Playing the waiting and watching game could prove a smart move. Ray Boulger of John Charcol, the mortgage broker, said: “A time will come when prices stop falling and stabilise. Then will be the time to swoop.” Until then, navigate your way through these shark-filled waters with extreme care.