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| Generational property purchasing has created interesting trends in Southern Europe
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A Spanish friend of mine told me proudly that he had just been to the notary with his son to sign for his son's first new flat. As any proud parent anywhere in the world he wanted to boast a little. But, what happened at the notary was a truly Southern European thing and something that most North Europeans just don't get. He didn't give his son a cash lump sum to help pay the deposit, no, that is northern thinking! Nor did he act as a guarantor should his son not pay the mortgage; no that is northern too. He signed that every month he will pay part of his son's mortgage. Unimaginable in the UK! Cultural differences Now, the next shocking bit. At 18 I'm told that Dutch children returning from university for Christmas holiday's are expected to pay part of the parent's household costs during the holiday. Yet, my Spanish friend's son was an unimaginable 28 years old. This cultural difference means that affordability (and therefore house prices) in Latin or southern European countries are quite different from the north of Europe where it's all based on your salary. In southern Europe it is based, more often, on the family income. This fact was borne out by research which we recently conducted in some third tier cities in Romania. There we discovered that whilst the average salary was around 350 per month, the average family income was around 850 per month. And guess which income was used to calculate the mortgage? Yep, you got it, it was the family income. Why is this? Well, partly it is cultural - parents in southern or Latin Europe expect to help their children until their 20's and 30's. They expect to help bring up their grandchildren, etc. Economic differences But it is economic too. In Spain for instance, the average home owner moves every 15 years vs the UK where they move every 5 years. This means that the average Spanish household moved 7.5 years ago and took out a mortgage based on property values 7.5 years - which means the mortgage is very small. The small percentage that have moved more recently in Spain have huge mortgages - but most do not. And, generally, parents moved a long time ago and have very small mortgages. (This explains why mortgage debt as a % of GDP in Spain is lower than the UK). It also means that the parent's income can be used in the mortgage calculation for the son or daughter. This fact also explains why average property prices in Spain are higher than the UK whilst salaries are generally 35% less. Lastly, it is worth noting that I don't expect to see many repossessions in Spain because families will stick together and if they have to, they will help each other out financially and so avoid repossession. Okay, so what does this tell us about Romania and Bulgaria too? We mustn't look at individual incomes when assessing house price potential in Romania and Bulgaria but must look at family incomes. Also, most parents already own their home debt free in Romania and Bulgaria - and therefore, they have the capacity to fund the family mortgage unlike the indebted UK or northern Europe.Therefore, you can expect the ratio of average house prices to average wages to be far higher in southern European countries and Romania and Bulgaria in particular. It also explains why in a sales office of a Romanian or Bulgarian developer I will see whole families discussing a purchase. Iin these countries it is a family affair based on the family income. By Neil Lewis, CEO Property Secrets
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