The best places in Europe to buy a luxury second home, rental property
Whether you’re looking for a vacation property when travel reopens or you want a shop for your money as stocks twirl, Europe can offer a host of attractive second-home destinations.
From access to fine cuisine and rich culture to stunning scenery, the continent has something for everyone – and property buyers are buying.
Over the past year, Europe’s prime real estate market has grown by 5.6% amid continued demand, according to new research from international real estate agency Knight Frank. Meanwhile, rental yields in the region’s most popular vacation destinations continue to rise.
“For second homeowners, European cities offer culture, connectivity and a good quality of life, while for investors they offer high tenant occupancy and relatively low buying costs,” Kate Everett-Allen told CNBC. , Head of International Residential Research at Knight Frank.
The growth comes as investors seek safe-haven assets and income-generating investments as inflation soars – with interest stretching across the Atlantic.
Yet, as with any investment, buying a property is a big financial commitment, and knowing where to start can be tricky. Using data from Knight Frank, here’s CNBC’s rundown of the best places to start looking for a second property in Europe.
Top cities for house price growth
If you’re in the capital growth market, consider taking a look at the ever-alluring cities of Western Europe.
According to Knight Frank, price growth in Europe’s major property markets – ranked in the top 5% of the market by value – has been among the highest in the world over the past year.
Berlin, Germany saw the strongest price growth of the year through June 2022, with high-end properties appreciating by 12.6% on average.
According to Knight Frank, property prices in Berlin have appreciated at the fastest click on Europe’s leading property market.
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The annual increase puts the German capital’s growth rate well above that of other global cities such as New York (7.3%), Hong Kong (3.1%) and London (2.5%).
Elsewhere, house price appreciation has been strong this year in the high-end property markets of Edinburgh (11.2%), Dublin (10.2%), Zurich (10.2%) and Paris (8.9%).
The continued boom in the region’s major cities comes as growth rates slow in the global real estate market amid rising interest rates and a darkening economic outlook. However, Knight Frank said the slowdown has not yet translated to property prices, with the luxury sector proving particularly resilient.
“Rising mortgage rates and a weaker global economic outlook are dampening some of the excitement of the past two years, but the downturn will be felt mostly in lower price ranges and domestically focused markets,” notes The report.
Purchasing real estate abroad is not without difficulties, however. Before embarking on a foreign purchase, potential buyers should consider exchange rates, local mortgages and taxes, ownership and selling costs, and any restrictions imposed on foreign owners.
The best locations for rental returns
If you’re looking for a rental property, Europe’s top holiday destinations might just do the trick, with the Mediterranean coast being a perennial favorite with holidaymakers.
In addition to the considerations above, there are a few other factors to consider when buying a rental vacation home. These include location – both in terms of proximity to local amenities and accessibility to international airports – year-round demand to minimize downtime and market liquidity.
The Italian regions of Tuscany and Liguria, the southern coast of France and the French Alps, as well as Barcelona, Marbella and the Balearic Islands in Spain are among the best places in Europe to invest in a rental property based on these criteria, according to Knight Frank.
Home to rolling hills, glorious cuisine and one of the world’s greatest collections of Renaissance art, Tuscany, Italy is a perennial favorite for overseas property buyers.
Slawomir Olzacki | Eye | Getty Images
Tuscany alone saw a 30% increase in inquiries in 2021, with the region accounting for two-thirds of all property searches in Italy.
The Tuscan town of Lucca on the Serchio River is a particularly popular choice, accounting for a quarter of buyer inquiries in 2021 alongside Pisa and Bolgheri, and seeing annual price growth of 6%, according to Knight Frank.
The average property price sought by Knight Frank buyers in Lucca and Pisa is now around 1.7 million euros ($1.8 million) – well below the average of 3, 7 million euros from the Tuscany region. In the meantime, the average daily rental rates amount to 471 euros.
Competition among buyers intensifies
The strengthening dollar and weakening euro are heating up the European real estate market, with the continent becoming an increasingly attractive destination not only for American holidaymakers but also for American property investors.
The euro is currently trading at roughly par with the dollar, which means that US buyers enjoy a 15-20% discount on house prices in any of the 19 member countries of the zone. euro compared to July 2021.
And it shows. In the first five months of 2022, Knight Frank saw a 37% increase in searches by US-based buyers for French properties. Now their research pool extends across the continent.
“In the past, U.S. interest has focused on cities offering culture and connectivity from Rome to Paris and Barcelona to Florence,” said Mark Harvey, international head of Knight Frank.
“But we are now seeing US buyers targeting traditional sunbelt areas, which is a departure from the norm,” he continued, citing growing interest in destinations such as Mallorca, Sardinia and the south from France.
With the US Federal Reserve tightening monetary policy at a faster pace than the European Central Bank, this rally in the dollar may continue, making Europe a competitive investment destination for some time to come.
“Further rate hikes by the Federal Reserve will see the dollar strengthen further against the euro, leading to potentially deeper discounts for U.S. buyers,” Everett-Allen added.