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Somewhere beyond the sea

Grant Bather

June 17, 2006

Every Englishman’s home is his castle and over the last few years, the entire nation has been fascinated by the rising (or falling) cost of their property. This has spawned a nation of property speculators all eager to make money through property. However, with the cost of the average UK home skyrocketing, many property investors are looking abroad.

So, what should you recommend when they ask you where they should be buying? Firstly, we suggest that you ascertain exactly what their financial goals are. Are they purchasing a property as an investment or as a holiday home? Do they want the opportunity to visit it every other weekend or are they happy to never even see it? What is their risk profile? How much do they want to invest? Once all these questions have been answered, it should be much simpler to recommend the type of investment they should be looking at.

Where to invest?

But the question remains – what country should they be purchasing in? The recently launched Prestige Group International Hotspots Index is a good guide for investors interested in purchasing property abroad with the top five destinations as follows:

Warsaw (Poland)

Poland has seen huge economic growth over the last few years and its capital, Warsaw, has benefited greatly from this boom. This city has some exceptional opportunities at the high end of the market and with the economy looking to continue to prosper, serious property investors should be considering this city. Other advantages that Poland offers are a relatively uncomplicated legal system, availability of 80 per cent financing and low stamp duty charges.

Florida (USA)

The United States has long been a favourite of property investors – offering market stability coupled with strong capital appreciation and the security of operating in an English speaking market. All these factors, as well as a weakening dollar, have seen Florida rise to second place in the International Hotspots Index. However, the market is slowing as it cannot maintain such strong appreciation levels in the longer term. Therefore, investors should make sure they are happy their investment could ride a period of low appreciation and still offer positive returns.

Cape Verde

This collection of islands, located just off the coast of Senegal, is a relatively new market with good potential as a major year-round tourist destination. In addition, it boasts low property costs (£96 average price per square foot) and local agents cite strong rental yields.

However, some of the islands have sanitation and energy supply issues, financing can be difficult to obtain and the legal system is complex. Despite this, the country should offer excellent returns in future and is one to watch.

Western Algarve (Portugal)

While Central Algarve has been a Mecca for investors for some years now, the Western Algarve is just starting to be noticed. It offers all the charm of the region but at substantially lower prices (two-bedroom villa with pool – Western Algarve: £275,000 compared to Central Algarve: £500,000) with fewer large developments. Although the stamp duty is relatively high, this region also boasts an uncomplicated legal system, low mortgage rates (3.4 per cent) and 80 per cent financing. The Western Algarve is ideal for sophisticated investors looking to see strong capital returns.

Sofia (Bulgaria)

Much of Central Eastern Europe provides high appreciation with good rental yields and Sofia – the capital of Bulgaria – is no different. This city also offers significantly low property values (£86 per square foot), which are likely to rise if and when Bulgaria joins the EU. However, the legal system is relatively complex so we recommend that investors looking to purchase in Sofia consult a local expert before making any decisions.

Alternatives

The Index also suggests that investors should consider Budapest (6) and watch Dublin (7), Cape Town (8) and Dubai (9). However, it recommends you don’t currently buy in the Spanish Costas as the market is overheating due to excessive development and legal issues. Finally, the Hot Spot Index tips Brazil as the ‘emerging emerging market’.

Overseas property investment is naturally more difficult and carries more risk than investing in the town or even road that a landlord lives in. However, these factors can be managed if, instead of simply focusing on the price of property and potential capital appreciation, factors such as the ease of financing, legal system and countries stability are considered.

If your clients are interested in investing in foreign property, you need to suggest they take their time, look past the hype, do their research and if possible use a company active in the market they are interested in. There are major returns available in the overseas residential market but investors need to exercise the same amount of care they would with any other investment.


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