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Historically, UK property values have doubled in value every 8 years and will doubtless provide good medium to long term returns in the future.
However, as the market (with the exception of London and a few areas undergoing serious regeneration) is anticipated to remain fairly flat for the next few years, professional investors have been shifting their focus to overseas locations that can provide much higher rates of growth and significantly higher yields, writes Frazer Fearnhead, director, the Armchair Property Investor
In fact, the number of Brits owning a property overseas is set to rise to 4.4 million within the next few years, according to recent research by Barclays. This "jet to let" phenomenon is being driven, not only by investors, but also by those seeking a second home that pays for itself as a lifestyle choice. With the proliferation of cheap flights, readily available finance and affordable properties producing higher returns than in the UK, there are even a large number of first time buyers who choose to get on the property ladder by purchasing overseas whilst still renting in the UK.
Following the success of Spain over the last 10 years as a foreign investment there are a number of overseas destinations being touted as the hottest spot, including Bulgaria, Cyprus, Cape Verde, Morocco, Panama ...but how do you decide which one is right for you?
The place you choose to invest in will, of course, be influenced by personal preferences especially if you intend to use the property yourself for part of the year. However, whatever area you are looking at you should consider certain basic factors to ensure you make the most of your investment and avoid the pitfalls that may turn your dream investment into a nightmare.
There are 5 key points to consider before you decide which area to invest in.
Gearing
Effective gearing is the key to successful property investment. Simply stated it means that you are able to use a small sum of money as a deposit and then borrow the rest to buy an appreciating asset worth many times the amount of your personal investment. Clearly, the lower the required deposit, the further your money will stretch and the more profit you can make. Many countries require a 30% deposit or more. All other things being equal, if you can find deals that only require 10%, rather than 30%, deposit and you can buy 3 properties instead of 1, you can make 3 times the profit with the same amount of money. (Of course you need to be comfortable with higher gearing, as it carries with it increased risk.)
Supply and Demand
The fundamental law governing property prices is supply and demand. Ideally, you should choose areas where demand is growing and supply is limited. The more limited the suppply the better e.g. beach front, national parks or other areas where land is limited or planning policies are in place to prevent high rises being erected everywhere. Consider difference between the Costa del Sol (where people are unable to sell their property for a reasonable price because of the massive number of new properties) and Cyprus which has specific restrictions on how and where new buildings are sited plus a limited supply of available land and a growing market for holiday rentals . Cyprus in my mind is clearly a much better proposittion.
Potential for Capital Growth
Large scale investment in the infrastructure of a region from the government, the EU or other sources will benefit that area far beyond the initial investment as the effect will be multiplied many times over as wealth is created and spent and respent. Look for areas that are investing in for example new marinas or golf courses. The general pattern is that as the money moves into an area (golfers and boat owners generally have money) the restaurants and nightlife become more chi chi, the area becomes generally more attractive and property prices rise. Research your areas and get in early to maximise profit.
Interest rates
There is a direct correlation between falling/low interest rates and rising property prices as it makes property more affordable. For the best buys, therefore, look for countries such as the EU accession countries or Cyprus that will be joining the Euro shortly - they all have to lower interest rates to converge with the Central European Bank.
Legal and taxation issues
You need to carefully research how safe is your title to land (be wary about Northern Cyprus). Ask - what level of corruption is there in the country (Bulgaria for example is on a par with Columbia in terms of corruption in the world rankings). Do you want to risk your money in such a country?
You also need to be aware of all the costs involved in the purchase of your property which can be as high as 25% in some countries.
Finally - plan your exit strategy carefully. When and who will you sell to? Make sure you believe there will be a strong resale market. What tax will you be liable for on your profit? Clearly there is no point in making £100,000 profit if the tax man takes most of it.
For a more detailed discussion on how to invest successfully overseas, why not attend one of the Armchair Property Investor's award winning seminars. These are purely educational with no sales pressure whatsoever.
email enquiries@armchairpropertyinvestor.com for information.
Web: armchairpropertyinvestor.com
Tel : 0845 230 5195