Buying and Financing property Overseas. Investing overseas as part of a balanced portfolio makes sense to lots of investors. Here is a market partly bucking the current gloomy, property market trend.

 As featured in Your Property Network – November 2008 Edition

Buying and Financing property Overseas

Investing overseas as part of a balanced portfolio makes sense to lots of investors. Here Louise Reynolds, who runs her own overseas property company explains how one of the markets she has invested in, is bucking the current gloomy, property market trend.

So why is Poland an interesting property market story?

Poland is the largest of the central European countries that joined the EU in May 2004. With a population of 38 million, it is nearly as sizeable as Spain and has a growing economy, in excess of 5%. Owing to its size, it carries a lot of property market weight.

It has seen double digit growth in the last few years, in excess of 25% in Warsaw and Krakow. Whilst this pace of growth slowed in 2007, as the market adjusted, property prices are still appreciating strongly. The fundamentals are good for medium to long term investment. A shortage of c.1.5 million homes, inevitably creates unfulfilled demand and as a consequence affects house prices.

What is the main challenge buying abroad in a market such as Poland?

A lot of clients can get put off by the language barrier to begin with, but Poles are highly educated and many speak English. Evidently documentation in the buying and selling process also needs to be in English. In many cases developers and banks used to dealing with foreign nationals, will have much of this already in English. Of course it really helps having a bilingual solicitor.

So how does financing work in a country like Poland?

Pretty much the same as here really. A mortgage application form needs to be completed and submitted either directly to a bank that deals with foreign nationals, or through a mortgage broker. Key differences are: the process can take longer, the banks tend to be more conservative in their lending policy and will verify affordability. It is a legal requirement on Polish banks to check the credit capacity of loan applicants.

How come Poland is not suffering from the credit crunch to the same extent as other Western Countries?

Precisely because of this conservative approach to lending, the banks are not facing the same challenges as the US, or some other European banks. The mortgage market is comparatively new in Poland and mortgage debt represents under 10% of GDP (in the UK it represents 83% of GDP). Poor debtors only account for 1% of mortgages in Poland, compared with the US where it is between 15-20%. Polish banks have not got involved with off-book financial instruments in the same way that Western banks have.

How likely is it that the housing market in Poland will slump?

Prices already underwent a correction at the end of 2007 and growth appears to be slightly slower (i.e not in excess of 20%) but sustainable. This has not created the same kind of bubble effect that has occurred elsewhere.Louise has just produced a special introductory report

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