How to make a killing in foreign property
KEVIN MURPHY FOR canny investors, this is a time to scan the horizon to see where opportunities lie in 2007. We've put together a list of the top foreign investment markets to guide you. Here's the pick of 2007:
Czech Republic There's going to be a rush into property in the Czech Republic next year because VAT laws are changing in January 2008, going up by 14 per cent.
Also, it's got solid economic credentials. Manufacturing and the services sector have grown in excess of 50 per cent while exports went up by more than 40 per cent. It receives strong levels of foreign direct investment, has a competitive mortgage market, and is a popular choice for some blue-chip firms, like DHL and Exxon Mobil.
Rental demand for modern apartments in Prague and Brno is strong, and since interest rates are low, mortgages are available to more and more local people. This is important because, apart from Prague and some ski resorts, buy-to-let investments have to appeal to local people and right now the best bet is modern family apartments.
Slovenia If you want to get one step ahead of the posse, then consider Slovenia. Yes, it has been overlooked in the past because it is a complicated place to buy, and because economic growth has been slow - but there have been some signs of tax cuts and with its entry into the eurozone there has been some improvement in the mortgage market.
It's getting into the EU on the basis of a sound performance, but it has an ageing population, so be sure there are exit opportunities should you wish to move on.
Prices are cheap too. You can buy a six-bed house for ?180,000 and because Slovenia covers the Julian Alps, there's plenty of skiing. It's still relatively undiscovered. British buyers are now the biggest European investors in Slovenia and they own a mere 652 homes there.
USA We spend so much time looking east that we forget to look west. The US has seen house prices fall by a record amount year-on-year for October and that usually signals an opportunity.
A study by the National Association of Realtors (NAR) found that property values decreased by 3.5 per cent. Before you get too excited, despite this, prices were still 0.5 per cent higher in October than they had been in September.
The advice is to hold off until next year because prices have further to fall. The continued weakness of the dollar is adding to the attractiveness of the market.
Prices will be higher than emerging markets, but you are purchasing in a sophisticated economy with high standards of infrastructure and services. If US buyers continue to sit on the sidelines, it will be time to make a move.
Poland Some tipsters are putting Poland on top of their list for 2007. It showed a solid performance in 2006, has received high levels of foreign direct investment, has extremely good mortgage packages and the demand for property far outweighs restricted supply.
It's not a new location though, and prices will reflect this. Still, growth is set to continue. In the residential property market this is predicted at 15 per cent a year over the next five years.
Krakow and Warsaw are the best-performing markets, although Lodz is tipped to grow. Be prepared for a challenge to find the right place, but the returns are expected to be there. And remember, this is a market where our own AIB is expecting to generate double-digit profit growth. On the down side, it is probably the least liberal of former Eastern bloc countries. Its economy is highly regulated and there is a heavy bureaucratic presence.
Estonia It's outside Central Europe, but Estonia's economic performance has been superior to any other country from the former Soviet bloc. Income per capita grew at a much faster pace than in Central Europe from 1995 to 2004 - by 96 per cent.
Property investors in the capital Tallinn have enjoyed up to 30 per cent increases in the underlying value of inner-city properties over the past few years, but prices are still expected to rise steadily by 9-12 per cent annually. Wages are increasing at 7-10 per cent a year, taxation has been cut from a blanket rate of 26 per cent to a rate of just 24 per cent, inflation remains very low and the mortgage market has massive potential.
Your ability to sell on tolocals is a key factor in deciding to buy here.
Romania Romania's entry into the EU, its increasingly diverse finance options and its economic performance all point towards an extremely good investment location. Growth in prices of 30 per cent is expected in 2007.
Remember, this is the country where Prince Charles has been buying up property. Also Renault, General Electric, Ikea and numerous Chinese corporations have been getting in before prices take off.
Somewhere behind Poland and Bulgaria in terms of the sophistication of its mortgage market, Romania is slowly getting there. This is a first-mover play, to avail of low prices in a relatively restricted but emerging market. Most popular areas are Bucharest, Transylvania, the coast and ski resorts.
If you buy anything other than an apartment you will need to establish a Romanian company, so get a good lawyer. There is a huge amount of red tape, even for Romanians, but the expectation is for slow improvements after EU entry.