Buying a holiday home in southern Europe during the pandemic has not been easy for Henrique Ferreira. He and his wife, from Greenwich in south-east London, have had flights cancelled twice in their efforts to purchase an apartment in Isla Canela resort in Andalucía, close to the border with Portugal.

“It’s been difficult,” says the IT consultant, who is originally from Lisbon. “This week I am getting the [28-hour] ferry and driving down to Portugal to sign the papers. This way I can maintain better control over my journey and won’t be crammed in a plane with 150 other people.”

The couple’s determination to buy a property in Spain has been strengthened by the pandemic, they say, and the desire to escape to uncrowded beaches and a slower pace of life.

However, with persistent uncertainty over travel arrangements, thanks to the uneven speed of vaccine rollouts, fear of new Covid-19 variants and oscillating government decisions around entry requirements, their dream has — as for countless other foreign buyers — sometimes felt tantalisingly out of reach.

At the same time, a combination of government support packages, tax incentives and the rise of remote working has caused something of a buying frenzy among domestic buyers, raising property prices in some rural and coastal spots that had been stagnant for a decade or more.

Now, just over a year after many housing markets across southern Europe reopened following the first wave of lockdowns, we look at the trends shaping property prices in the region.

For buyers who depend on rental income to pay the running costs for their overseas properties, a second summer of depleted income is going to bite hard. Europe was the world’s largest tourism destination, accounting for 51 per cent of total global arrivals in 2019, according to the World Tourism Organisation (UNWTO). Since the pandemic, numbers have collapsed.

Column chart of Nights spent in tourism accommodation, rolling 12-month sum (m) showing Foreign tourism has collapsed

According to data from AirDNA, which tracks the market for homes let on short-term rental sites such as Airbnb, hosts across the region face a relatively quiet summer. As of May 20, nights booked June to September were down 45 per cent in Spain compared with summer 2019; in Portugal and Italy, they were down by more than 50 per cent.

This includes property owners on Spain’s Costa del Sol such as Jason Hyland, whose two-bedroom penthouse apartment in Mijas was, until the pandemic, a great investment with high occupancy rates.

“It was fully booked in 2019 — with UK, Scandinavian and Russian guests — but I dropped the price from £600 to £300 a week to attract the French, Spanish and Moroccans during the pandemic,” he says. “I am at 50 per cent capacity but I still manage to cover my costs.” His apartment is for sale at €149,995 through Affinity Spain.

Spanish sales to international buyers, too, are yet to recover to pre-pandemic levels. In the first quarter of this year, there were 12,561 sales involving a foreign buyer, according to the Association of Spanish Land Registrars, down 23 per cent on Q1 2019.

At the beginning of the pandemic — fearing another Spanish property crash like the one of 2008, when many developers went bust — buyers shied away from buying off-plan, says James Vizetelly, marketing director of Affinity Spain on the Costa del Sol, adding there was a little panic selling.

“But the situation reversed when the market opened up in July and purchasers decided they were happy to wait out the next 18 months of likely stop-start travel restrictions.” With nothing but computer-generated images to view, off-plan schemes are more likely to be purchased remotely,” he says. “Fifty per cent of our sales are sight unseen.”

With incomes largely protected by public support packages, and reduced spending due to Covid-19 restrictions, household savings rates in southern Europe have risen to the highest level in decades, boosting domestic demand for property.

In Italy and Greece, the share of the population saying that now is a good time to make big purchases such as houses has hardly been higher in the past 20 years, according to a monthly survey of the European Commission.

In Spain, Portugal and Italy, rates on loans for house purchases have never been so low, according to data from the European Central Bank. In April, mortgage lending in Italy and Portugal was up 3 per cent compared with April last year, say the same ECB data — and is expected to continue to grow, according to the central bank’s latest lending survey.

Line chart of Average interest rate (%) showing Mortgage rates across southern Europe have reached record lows

Property prices are growing: by the last quarter of 2020, annual price growth in Portugal hit 8.6 per cent up on the year before, not far off its record pace in 30 years, according to Eurostat data. In Italy, price growth hit its fastest pace in a decade, while in Spain and Greece, price growth continued, though at a lower rate than in previous years.

This was all at a time when these countries experienced their largest economic contraction on record, and were approaching the 10th anniversary of the eurozone debt crisis, which in 2011 plunged them into a second downturn after the financial crisis several years earlier.

Tax incentives have helped. In Andalucía, a reduction in property transfer tax (from a sliding scale of 8-10 per cent to flat rate of 7 per cent) and stamp duty on new-builds (1.5 to 1.2 per cent) introduced in April has helped stimulate sales.

In Greece, the 24 per cent VAT payable on new-build homes has been suspended until the end of 2022, with only a transfer tax of 3 per cent and an average 8 per cent reduction in annual property tax (ENFIA).

Line chart of Nominal prices, rebased, August (2007= 100%) showing Since the pandemic, property prices have risen across much of Europe

In France, Dutch, Belgian, German and Swiss buyers have been able to drive over to view properties. Transaction levels across the country are rising towards pre-pandemic levels. In the 12 months to February, there were 1,046,00 resales, just below the 1,075,000 recorded in the year to January 2020, and way ahead of levels recorded since the millennium.

Ricardo Amaro, an economist at Oxford Economics, expects house prices across southern Europe to remain resilient due to extensive public support measures. “The labour market shock has been concentrated in segments [of the population] that are not very active in homebuying,” he says, such as the young and lower-paid workers.

Line chart of Rolling four-quarter average (%) showing The pandemic resulted in rising household savings

Straddling his 1970s Vespa, Roberto Ceravolo is about to make the one-minute ride to the beach from his new house in Pizzo di Calabria, in the toe of Italy, after the pandemic prompted an “impulsive” decision to leave Milan.

When the 35-year-old Italian manager at a leading telecoms company was asked to work remotely from his city flat, Ceravolo decided to buy a 100 sq m property in his home town — and for around a quarter of the price he thinks he would have spent in Milan. From his new house, which has office space and a gym, he can go and eat sea urchins directly from the sea, and temporarily forget about Milan and the excitement of New York, where he worked before.

“Looking at the deep blue sea from my window gives me a lot of peace,” he says. “It’s beautiful; it makes you realise that life is not only work.” Even after the pandemic, he expects to be able to work from Pizzo for at least a few months a year.

In the meantime, he is developing a new side project with a partner: to buy and restore a handful of old properties in the historical centre of Pizzo, either to sell on or to let out to holidaymakers. He was attracted to the investment plan by the lower prices of older properties and the advantageous new tax incentives on home improvement that are boosting interest in the properties nestled around the town’s 15th-century castle.

Ceravolo is clearly not alone. Nearly two-thirds of Italy’s real estate agents reported higher sales expectations of second homes for 2021 compared with pre-pandemic levels, particularly in the poorer south, according to Italy’s association of real estate agents (FIMAA).

Andrea Oliva, head of research at FIMAA, says the trend reflects the desire of many buyers to use an additional property “throughout the year, thanks to the increased use of remote working”. Separate tax data show the recovery in housing sales is being driven by properties in smaller municipalities.

Ceravolo’s new property is in Italy’s poorest region, where there are more than 100 towns with fewer than 5,000 residents. Together, their population has halved since the 1950s. Many municipalities not far from Pizzo are selling properties for €1 in a bid to reinvigorate villages whose numbers have declined due to emigration and ageing populations. Other Italian municipalities have gone further, offering a steady income to anyone willing to move to their dying villages permanently.

The trend is similar across similar regions in southern Europe, many of which have registered a population decline of up to 10 per cent over the past five years, according to Eurostat data. “In Pizzo, entire generations are missing,” says Ceravolo. “There are few people in their thirties and forties like me.”

Many regions in southern Europe report sharp declines in population. Map showing % change in population 2015 to 2020 by NUTS 3 region. Worst affected countries are Portugal, Spain, Italy and Greece, with some regions reporting almost 7% decline over the 5-year period

Monia Di Guilmi, director of Abruzzo Rural Property, an estate agent that specialises in the poor Italian regions of Abruzzo and Molise, says that since the pandemic, they have registered the highest number of sales in a decade.

Chiara Oliva, cofounder of HOLIWORK, a start-up that facilitates remote working in mainly rural locations, such as Puglia in Italy’s heel, also says that business has been “booming” in the past year. An estimated 45,000 people have been working in Italy’s south for businesses located in the richer north, taking advantage of the flexibility of remote working, according to data from the national association for the economic development of Italy’s south.

High-end markets in both southern Spain and France have remained stable throughout the past year. In the 12 months to February, for example, there were 65,799 property sales on the Côte d’Azur, compared with 64,949 the year before, according to the General Council for the Environment and Development. In Provence, the figures were 87,993 and 83,939.

According to Knight Frank Research, the price of homes in the top 5 per cent of the market in Provence increased slightly between Q1 2019 and Q1 2021, from €6,050 per sq m to €6,200 per sq m. Homes in the “golden triangle” between the medieval villages of Gordes, Ménerbes and Bonnieux have especially been in demand, it added.

Travel restrictions have been less of an obstacle for wealthy buyers, says Edward de Mallet Morgan of Knight Frank’s super-prime division. “There’s been a lot of chartering of private planes by people who didn’t use them before, often sharing.”

According to WingX, an aviation intelligence company, levels of private jet traffic in 2021 compared with 2019 is up 30 per cent in Malaga and Mallorca and 83 per cent in Ibiza, but down 16 per cent in Cannes.

In Marbella, estate agency Engel & Völkers reports that 2021 sales are already 45 per cent higher than the same period in 2019. Deals this week have been to Swedish, French and German buyers, all viewing in person — since June 7, fully vaccinated travellers from the EU and Schengen countries can enter Spain without needing proof of negative tests.

“This ‘boom’ is not like the one of 2003-06, which was of the lower-to-middle end of the market and dominated by British buyers,” says Smadar Kahana of E&V. “This is being driven by other northern European nations — and some North Americans.”

Karen and Peter Lambert, from Liverpool in north-west England, managed to fly out to the Catalan city of Tarragona to buy a house in October, during the window of opportunity between lockdowns. The Lamberts, who want to spend more time there when they semi-retire, were keen to complete before the end of the Brexit transition period and submit their residency application. “Travelling to view properties during the pandemic in many ways simplified things: there were no crowds,” says Peter.

But even for those who have managed to purchase a holiday home abroad in the past year, like the Lamberts, it’s still not entirely clear when they will be able to enjoy it. “We are hoping to get there for the first time in August,” says Peter. “Or sooner if we can.”

Additional reporting by Davide Ghiglione in Rome

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