There are trends in property that come and go, some are fads and get-rich-quick schemes, others have more merit and so persist. Here are a few things to bear in mind when investing in property abroad:
1) Property investment as a serious alternative to pensions
Property is increasingly seen as the new pension. Pensions have suffered from a long reign of stealth taxation and many other forms of investment have fallen into disrepute along the way.
With interest rates so low, simple savings are not paying out, nor are many pensions returning what they should.
Investors are interested in exploring how to boost their pensions and investments with property, a more buoyant asset class, or to invest in property as part of a SIPP.
In buy-to-let property you get income, as well as leverage, the ability to borrow money against the property asset, which means several things. Not all of your money is tied up in one property, which means it can be doing other things and this can reduce risk, if this is desirable.
In addition it means that whatever capital upside there is, you will gain on the price of the property, not just the deposit you have made. So taking a £200,000 property with a 5% or £10,000 deposit, a 7% uplift in the property price will be a £14,000 gain rather than a 7% uplift in the deposit, which would equate to £700, the equivalent of an exceptional savings return on “your” money. In a savings account, you don’t earn this on someone else’s money i.e. the lender’s, although vehicles like investment trusts can use leverage.
2) Property Investors – more financially mortgage-savvy
On the Finance and mortgage front, a new European law on mortgages seeks to harmonise mortgage regulation across Europe and may mean it is harder to get finance. The European Parliament has provisionally approved the Mortgage Credit Directive, which will require UK and foreign lenders to tighten up in certain areas, such as greater stringency on the quality of the mortgage repayment vehicle. This may make it more challenging for some people to get mortgages in 2014 and onwards.
3) Off-plan property buying is in vogue again
In the past off-plan buying has worked in a rising market. The recent fall in many European property markets has meant the standard, off-plan investment formula has not worked in the same way. This is where a buyer may acquire one or several properties, expecting to “flip” the contract, or sell it on, whilst never having to complete and pay stamp duty, or other completion-related expenses. This works where prices are on the up and demand is stimulated. In a falling market the pool of potential buyers can suddenly dry up and buyers have to be wary of being left to complete on purchases, they cannot afford.
However, now that the building industry dusts itself down and wakes up to renewed buyer demand, properties are being bought off-plan again in places like Poland and Turkey, where there is a crucial role for new builds.
4) Property investment – Legal Advice – Independence
It is stating the obvious, that buying property overseas is different from buying in the UK. Whilst not an obligatory requirement to use a lawyer as part of the conveyancing process in many countries in Europe, it is highly advisable.
Many countries in Europe use a notarised process – the legal formality of signing the final contract in front of a government official with special legal powers and is lodged with the local Notary’s office. It is this formal process which is recognised in law locally and it is usually a legal requirement to have a sworn translator present because this is the final, legally-binding stage of the buying process.
A developer may have their own in-house lawyer – which can have the advantage of someone who is familiar with the contract and so save time and money, but you want an objective eye to be cast over the contract with your circumstances and considerations in mind, independent of the developer’s considerations.
5) Property country and location – choose wisely
A key thing to consider is the location of the property, not only the country and city, but also the location within that city. As well as what changes are imminent or planned, which might enhance the nature of the investment, or cause the value of property to rise or fall.
Think Turkey for example, a country which has had its ups and downs. Its major city Istanbul, is undergoing a boost from investors, who have spotted its geographical and economic potential. It is also boosting its infrastructure, with new Metrobus stations being added and the metro line extended, to connect more of the city. It now also passes under the Bosphorous to connect European Istanbul with Asian-side Istanbul, with the new tunnel which opened in 2013.
Poland too is a country whose infrastructure has seen continual improvement. EU structural funds have poured into Poland, together with government funds, tallying more than €100bn by 2013. And then there was shale Gas, a potential game-changer. In the US tapping into vast reserves of shale have cut consumer energy bills and reduced industry costs, to the point that some energy production has been repatriated from low-cost producing countries like China. Poland is now well positioned to lead shale gas development in Europe. The country has one of the largest reserves for shale gas in Europe.
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Property Venture® is an award-winning, UK-based agency for overseas property who helps people buy investment property and holiday homes in Europe, more easily and safely than they can on their own, because we offer grounded common-sense advice.
The focus is mainly greater Europe: Poland property, UK investments, Spain property, Turkey property, Cyprus property
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