Tens of thousands of Irish homeowners may be facing financial meltdown as hugely hyped overseas property investments turn sour.
Lured by unrealistic promises of extraordinary returns, Irish investors borrowed heavily to pick up cheap buy-to-let apartments abroad. But property prices in these so called "hotspots" have begun to plummet in recent months.
Along with rising mortgage rates, the strong euro and dismal rental markets, dark clouds are forming for a so- called "Perfect Storm" that could decimate the investment nest eggs of the househunters in the sun.
About 150,000 Irish investors are thought to have bought properties in Spain. However, the oversupply of apartments in Spain's Costa del Sol has pushed the price of some properties down by as much as 20 per cent.
Last month, the Kyero Spanish house price index revealed massive price falls across the country, with the average value of a two-bed home in Mallorca falling €33,000 to €292,000 in the past four months.
Similar slumps have been logged in areas from Gran Canaria to Girona and Cadiz. Estate agents are now advertising "price-reduced" homes in almost every region.
The slowdown in the overseas property market comes at a time when Irish investors in properties promoted by Michael Lynn, the solicitor and property developer at the centre of an investigation by the Law Society, are already worried. Some of these investors have paid deposits on overseas property but have not yet secured the title.
"If you look at a typical two-bedroom apartment in the Costa del Sol, its paper value could be about €250,000," said Darren Costello, managing director of propertyinvestments.ie, a Dublin firm that offers advice on overseas property investment.
"But you'd be hard-pressed to find a buyer for €200,000."
Bulgaria has been touted as a investment "hotspot" by Irish property promoters. But new figures from investor.bg, reveal that apartment prices in Sunny Beach fell by 4 per cent in July alone.
Similar slumps have been experienced in Ahtopol, Prmorsko and SvetiVlass, as a massive oversupply of tourist apartments remains unsold.
Prices in popular developments such as Sea Dreams Village or the Iglika 1 complex have been reduced by up to one third, according to Icon Properties advertisements. Bulgarian ski resorts such as the hugely hyped Bankso are suffering, with local reports suggesting that the 150 local estate agents have not sold a property there for four months. Yields at some holiday homes and residential developments have tumbled by nearly 40 per cent. Many Irish investors are trapped in Bulgaria, unable to sell properties and struggling to meet mortgage repayments as introductory "guaranteed rental" deals come to an end.
Other hugely popular eastern European or Baltic markets have skidded to a halt, with dramatic price-falls in some countries. Latvia's bubble has well and truly burst, with the Latio Investment agency revealing falls of almost 11 per cent since April.
Estonia and Lithuania have also experienced decreasing property prices. The central statistics office in Poland has also reported values slipping in the second quarter of the year. In Budapest, Hungary, some 3 per cent has been snipped off prices of new apartments, according to the Global Property Guide.
One Irish investor is facing losses of about €30,000 after buying a Budapest property for about €79,855 three years ago. The investor, who is now trying to sell his property, was advised that the best sale price he can secure now is €69,000. By the time he sells the apartment, he will have paid about €20,000 in fees, taxes and renovations.
The US housing market is also in freefall, fuelled by the sub-prime crisis. The Florida property boom, which lured thousands of Irish fly-to-let investors, has gone into reverse. Investment properties are being advertised with massive reductions all across the state. A property at the Barefoot Beach Resort in Indian Shores has just had $14,000 sliced off its asking price in the past month.
Latest Federal data from the OFHEO reveals that 18 of the largest 20 urban price falls have been experienced in Florida and California. Houseprices in Punta Gorda have plummeted 7.12 per cent this year, with Sarasota and West Palm Beach also tumbling by up to 6 per cent. Property values in New York are also down by a half per cent in the last quarter.
"I know of one case in Florida where the house, which has a paper value of $300,000 (€210,525), is being repossessed," said Darren Costello. "The owner is looking to sell it for $200,000 (€140,350)."
The poor performance of the dollar over the past year has also eaten into the pockets of Irish investors. Since mid-October, the dollar has lost 13 per cent of its value against the euro, according to Gary Connolly, head of fund marketing with Dublin stockbrokers Merrion Capital.
"If you bought a property in the US for $500,000 a year ago, it would have cost you about €400,000," said Mr Connolly. "Even if the property's value has remained the same since, the fall in the dollar means that you'll only get €350,000 if you sell it today."
Irish buy-to-let owners of some British properties are also being hit with losses of up to 15 per cent. The over-supply of new apartments in parts of Liverpool, Manchester, Sunderland and Cornwall has made it impossible for some investors to sell off their properties or to rent them out.
The Mediterranean coast of Turkey is also labouring under the weight of unsold properties. Some apartments from Dalaman to Yaikavaa have had prices slashed by as much as 35 per cent.
Properties in Cyprus are also being advertised at "reduced prices", with a new build Coral Bay villa for sale at a massively discounted rate.
Dubai was also hugely popular with Irish buyers. Last week, some apartments in landmark Dubai developments, ranging from the Marina to the Media Zone towers, are on sale with prices reduced by as much as 10 per cent.
One €89,000 studio apartment was on sale having had its price tag slashed by €10,000, with a larger €196,000 apartment now on sale at €180,000. Further afield, the Bank of Thailand has just announced that detached houses lost 4.1 percent of their value. Many people bought properties in eastern Europe on the back of rental guarantees, according to Frank O'Dwyer, chief executive of the Irish Association of Investment Managers (IAIM). "Rental demand is linked to earnings in a country -- not rental guarantees," he said. "The average wage in Romania is about a tenth of what it is in the EU."
With rental guarantees, agents usually only pay back the money initially paid by the investor to buy the property, according to Tom McGrath, a senior partner with Dublin law firm Tom McGrath & Associates.
Overstretched Irish borrowers are already falling victim to the bursting foreign property bubble. One lender who specialises in overseas finance told this paper about a homeowner who raised €700,000 in equity on their Dublin home to buy apartments in Turkey, Budapest and Bradford in England.
"The apartments came with a year's rental guarantee," said the lender, who did not wish to be named. "When the guarantee ran out, he realised there was no rental market in those areas. He's put his home as security for these loans, he has no rental income and meanwhile European interest rates have gone up by 2.5 per cent. By the end of this year, Irish people will be struggling to extricate themselves from some of the investments they've made."