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Property overseas – a worthy investment?

by Yulia Ponomareva at 08/11/2012 19:09

When buying property overseas, experts say a potential investor should be clear about their purpose – to resell, rent out, or achieve some other goal.

Nina Volkova, the director of the international real estate dealer NV-Company, said that most of her firm’s clients buy overseas property for themselves rather than seeing it as an investment opportunity – its profitability should not be expected to exceed 3-5 percent over the next few years.

“Some want to find a retirement haven, others buy property in Europe to receive permanent residency there, which explains the growing interest in the Baltics, Cyprus and the Czech Republic, many look for housing in cities where they’re sending their children to study,” Volkova said.

If the goal is resale, elite property in most locations should be regarded only as a long-term investment at the moment because of the economic crisis, according to Natalia German, the head of international sales at the Moscow-based Best Elite brokerage. “It can be sold with a profit no sooner than in five years’ time when markets bounce back after the crisis,” she said.

Denis Yevseyev, the CEO of the Kingsland real estate agency, recommends a reseller to look at real estate whose price is least affected by competition, that is exclusive offers in growing markets. When it comes to buying property for renting it out, the main thing to take into account is the ratio of its price to the future rent – the smaller this number the more of a bargain the deal is.

Investment strategies

Yekaterina Tein, a partner of the Chesterton real estate company, divided investment plans into three categories – safe but low-profitable, risky but with potentially high profits, and professional, hands-on investing.

“The upside of the first type is that it doesn’t take much of your time, you just buy a piece of property, find a managing company and rent it out,” Tein said. Suitable locations include London, Switzerland and the French Riviera.

“New markets that have gone through a period of political or economic turbulence or have only recently opened up to international investors offer higher profits but at the same time there is a high risk to lose everything,” Tein said.

In his interview with CNBC in June this year, real estate guru Donald Trump said that Spain and Greece hold “great opportunities” for investing. “Spain is an amazing place,” Trump said. “It’s a great country and it’s got a fever, and this is the time to take advantage of it.”

New EU members attract prospective property owners offering different benefits or facilitating purchase procedures for foreigners. In Latvia one needs to buy a piece of property worth €145,000 in Riga or Jurmala or €75,000 in other parts of the country to receive residency. In Cyprus the threshold is €300,000.

Yevseyev of Kingsland believes that investment should be made in stable economies, such as Britain, Switzerland, France and possibly the United States.

“A low price means that there are problems in the country,” Yevseyev said. “Many developing countries stimulate international investors by offering carrots like tax breaks. Developed countries don’t need to attract investors – the flow of investment is always stable.”

Professional investing suggests maximum involvement in property management.

“It’s not just about buying a piece of property, it’s about repairing, renovating, renting out and reselling it,” Tein said. “Right now there are very few European countries where such investment would be worth it. In fact this business is most profitable in Moscow.”

Regional differences

Market trends vary not only in different countries but in regions within the same country. Volkova of NV-Company cited the Spanish Mediterranean coast as an example. “Prices have dropped in Costa Blanca over growing construction; in neighboring Costa Brava no fall in prices is to be expected,” she said. Overall real estate prices in Spain have collapsed by 53 percent since they peaked in late 2006.

German of Best Elite believes that now is the right time to invest in elite real estate abroad. “The crisis is a unique moment when you can buy premium property at the price of economy class property,” she said. One of the hot offers in her portfolio is two- and three-bedroom apartments in Costa del Sol that cost over €400,000 before the crisis of 2008 and now are traded at €98,000.

In other regions the trends are just the opposite. Leading international residential and commercial property consultancy Knight Frank has reported that prime property prices in London and New York now stand at 37 percent and 25 percent respectively above their recessional lows. “But it is Asia that makes the headlines; luxury homes in Hong Kong are now 72 percent higher than at their low point in Q4 2008, while Shanghai and Mumbai have seen growth of 115 percent and 220 percent, respectively, from their markets’ trough,” says Knight Frank’s Global Development Review 2012.

Experts say the features found in new luxury residential developments around the world vary greatly from one region to the next.
“While the most exclusive scheme in Kenya might feature a heliport and game reserve, London’s best projects are more likely to impress with a world-renowned architect and iris-recognition lifts,” says Knight Frank’s review.

While Knight Frank analysts note that luxury property prices around the world are collectively softening for the first time since the global recession hit in 2008-09, the prime market is expected to continue to be less exposed to the risks in the global economy than most mainstream housing markets. “Luxury homes in prime global cities will, we believe, retain their safe-haven reputation, but they will attract fewer speculative investors seeking a short-term gain,” Knight Frank said.

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