So what will it be – a riad in Morocco, a poolside home on the Cape, or maybe
a buy-to-let in Albania? Our foreign property habits are changing; just a
few years ago, a gîte in France or a villa in Chianti-shire
seemed about as exotic as it got. These days, nowhere in the world is too
distant – or too unlikely – a target for the growing army of British
property buyers.
Whether it is a holiday home, a place to retire to, an investment to
supplement a pension – or, increasingly, a mixture of all three – some
800,000 of us now own a home abroad. Even concerns about the environmental
consequences of air travel look unlikely to put anything more than a small
dent in the upward curve.
So, if you want to join the overseas-property-owning classes – or add another
flat or house to an existing portfolio – where should you buy? Much of your
choice is down to personal taste, of course, but this special edition of
Home will help you make an informed decision, highlighting the best places
across the world to buy a dream home by the sea, a rural hide-away or a
property in the increasing number of ski destinations that have added golf
courses and other sports facilities, and rebranded themselves “all-season”
resorts.
But don’t imagine that buying a foreign holiday home will be all plain
sailing. As our columnist Kevin McCloud reports on page 13, dealing with
planners in Italy can be like descending into Dante’s Inferno.
The experiences of a British couple who bought in Spain, only to find a bridge
built yards from their dream villa, provide a salutary warning about the
perils of buying off-plan. What about that dream of selling up in Britain
and opening a B&B in France? Read on page 30 about the experience of one
British woman who did just that, before rushing back across the Channel.
Perhaps because of our love of the new, much of the attention over the past
years has been focused on the so-called emerging markets – in central and
eastern Europe, and more exotic destinations beyond, from Brazil and
Argen-tina, in the west, to Thailand and the Philippines, in the east. New
names, such as Bosnia, Ukraine and Mongolia, are being added as fast as
enterprising British agents can source properties there and set up websites
to flog them. Iraq, anyone? Come back in a couple of years – but in the
meantime, might Afghanistan be worth a punt?
From a pure investment point of view, many of these destinations certainly
make sense: former communist countries take the top four places in the
latest edition of Knight Frank’s Global House Price index published last
week. Riga, the Latvian capital, again leads the pack, with prices up an
annual 61.2% in the first quarter of this year, against 44.8% a year
earlier.
Property analysts expect prices in Latvia, and in its neighbours, Estonia and
Lithuania (in second and fourth places, respectively, in the index), to
continue rising at a fast pace, thanks to the blistering performance of
their economies, which have been growing at near Chinese rates. Slovakia,
which has embraced tax-cutting and free-market policies similar to those in
the Baltic states, is also doing well.
Poland, too, is proving increasingly popular with investors. Despite the
perception that most of the country’s population is seeking work in Britain,
there are plenty of countrymen back home keen to leave their crumbling
communist-era blocks for something more sophisticated. Mamdom (www.mamdom.com),
a leading Polish property portal – it means “my house”, since you ask –
reports that the market is cooling in Cracow, a favourite with foreign
buyers, but says prices in Warsaw, the capital, and cities such as Poznan
and Lodz look set to continue growing.
Cyprus and Malta – which joined the European Union, along with Poland and
seven other former communist countries, in 2004 – are also proving
attractive to British buyers. So, too, is Croatia, which is expected to
become a member in 2009.
Morocco, meanwhile, is rapidly turning into a cut-price alternative to Spain
as that country’s developers cross the Strait of Gibraltar. But while the
traditional riad and even new-builds in Marrakesh and Fez remain a good bet,
there could be oversupply on the coast, warns John Howell, a senior partner
in the International Law Partnership. “There are some nice places, but the
developers are basically doing the same kind of thing they did in Spain,
plus a few Arab twinkles, and selling them for the prices they got in
Torrevieja 15 years ago,” he says. “The problem is that thousands are coming
along at the same time.”
A potential glut looms even more alarmingly in Bulgaria, the most
enthusiastically hyped of all the emerging markets. Although the country is
placed third in the Knight Frank index – with prices up an annual 22.6% in
the first quarter of this year – experts predict a spate of distress sales
as speculators find they are unable to “flip” on their properties, while
those hoping to rent them out struggle to find enough tenants to pay the
mortgage.
Things are looking much sunnier in the Caribbean, even if the Cricket World
Cup this spring may not have given the boost to prices that some had
expected. The recent decline in the US dollar – in which properties there
are priced – to almost two to the pound has reduced the cost of homes on the
islands.
Don’t just think Barbados, though: St Lucia, one of the larger Windward
Islands, has long been described as “the next big thing”; prices there are
60% lower than in Barbados, but rising fast. Or what about Grenada, the
largest of the Grenadine chain, which benefits from frequent scheduled
flights to Britain?
With its year-round season, the Caribbean is also ideal for fractional
ownership – a 21st-century form of timeshare, under which you buy a stake in
a property, but get a share of the title, and so benefit from any capital
gain if its price rises.
The weaker dollar, of course, has also added to the attractiveness of America,
where the bursting of the property bubble has led to sharp falls in prices,
especially in those parts of Florida traditionally popular with British
buyers. The question is whether to buy now or hold off for a few more months
in the hope that things will become even cheaper. Either way, be sure to
drive a hard bargain.
Not exotic enough? How about buying a slice of a game reserve in South Africa?
Bill Blevins, managing director of Blevins Franks International, an
independent firm providing tax and investment advice, did just that. Five
years ago, he paid £60,000 for a site on a game reserve in Hoedspruit, near
the entrance to the Kruger National Park, and spent another £150,000
building an eight-bed lodge there. “The property is now worth at least
£500,000 and I am looking at buying something similar in the Limpopo-Lipadi
nature reserve, in Botswana,” he says.
Despite the lure of such exotic destinations, don’t ignore old western
European favourites, especially if you are looking for a bolt hole within
easy reach of home. The majority of the most attractive spots on the
Mediterranean coast are less than two hours by plane from Britain and,
thanks to improvements in the European rail network – including the
upgrading, this November, of the Channel tunnel link – are now more easily
accessible by rail.
“People are getting distracted by far-away locations, and we do question how
suitable they are for holiday homes,” says Stuart Law, chief executive of
Assetz, a property investment group. “Brazil looks very attractive when you
see it in the exhibitions, but you are not going to be flying there for a
long weekend.”
They would be far better off, says Law, buying in France, which has seen year after
year of strong capital gains – often running into double digits – and still
offers good rental returns, especially in Nice, Cannes and other perennially
popular holiday spots on the Côte d’Azur. Prices have also risen strongly in
Paris.
He believes that Spain, too, remains a good buy, despite concerns about the
long-term health of the country’s property market, prompted by last month’s
sharp fall in the value of shares of leading developers. Indeed, with the
latter keen to shift stock, it could be the perfect time to demand discounts
of as much as 20% on asking prices. “Nothing has really changed to detract
from Spain,” Law adds. “The sun still shines and it is still an attractive
place to have a holiday home.”
The appeal of such destinations is borne out by the figures: according to data
compiled by Knight Frank, a house that cost £100,000 in France in 1997 would
cost £245,000 today; the same house in Spain would be £312,700. The British
property market did even better than both.
The Italian market, by contrast, has performed less strongly, due largely to
the continuing weakness of the country’s economy: the equivalent figure
there is just over £170,000. This means, however, that those ready to look
beyond Chiantishire and other parts of Tuscany most popular with British and
other northern European buyers can still find bargains. In parts of northern
Tuscany and Liguria, for example, it is still possible to find country
properties – albeit often in need of modernisation – for less than £100,000.
Although unlikely to figure on most people’s list of top 10 holiday
destinations, Germany has also become more popular with British investors
since it first appeared on their radar screens 18 or so months ago.
Attention has hitherto been concentrated largely on Berlin, where a
tradition of renting rather than buying means high-quality tenants and some
of the highest yields in Europe. Prices, which fell during much of the
1990s, may at last be starting to rise, thanks to the upturn in the German
economy.
Other German cities, such as Munich or Leipzig, could also prove attractive
places to invest, while buyers looking for a country house near a lake or in
the mountains will be surprised how far their money will go in Bavaria or in
the Black Forest, in the southwest of the country. Unlikely? Given the speed
at which things are going, bauern-hof (farmhouse) could soon take its
place in the property-buyer’s vocabulary alongside finca, riad and gîte. Now
there’s exotic.
The knowledge
Should I buy a new or an existing property?
New properties, often sold off-plan (that is, still under construction), are
usually touted as the hassle-free choice, but employ a good, local
English-speaking lawyer who you are sure is independent of the developers to
check the paperwork to make sure the building turns out as promised. Buying
an existing property, especially one to do up, can be more satisfying, but
don’t underestimate the difficulties. It’s hard enough dealing with builders
at home – just think what is it like doing so hundreds of miles away.
How do I pay for it? Remortgaging at home used to be the only option, but it
can make sense to borrow in the country in which you are buying. Rates will
also be lower in eurozone countries such as France or Spain, and even parts
of eastern Europe, than in the UK. Either approach local banks directly or
use a broker such as Fidentia Group (www.fidentiagroup.com)
or Conti Financial Services (www.mortgagesoverseas.com).
Will my property pay for itself?
With interest rates on the rise across much of the world, it will be difficult
to cover all your costs through letting out your property, especially if you
buy somewhere where the rental season is limited and you nab the best weeks
yourself. So, be realistic when you do your sums. If you choose well, you
should make capital gains, but be patient: it’s not as easy as it may seem
to make a quick profit.
What about taxes?
If you rent out your property, you will have to pay tax on the proceeds in
most countries, although you will normally be able to offset mortgage
interest and other costs against your income. HM Revenue & Customs will
also be entitled to a cut, and has threatened a clampdown on tax dodgers.
(An amnesty announced last month gives anyone who thinks they have underpaid
until June 22 to come clean.) You will also face paying capital-gains tax on
any profit made when you sell. You will need an accountant to guide you
through the maze.
Ones to watch
Brazil: The northeast coast, six hours’ flight from the UK, is good for
cheap beachfront property
Cape Verde: The jury is still out – infrastructure is poor and there
are concerns about overdevelopment
Germany: High rental yields make Berlin popular with investors;
property elsewhere is also cheap
Poland: Prices are rising strongly, confirming its appeal to investors
Spain: Haggle and you could get 20% off some new developments on the
costas
USA: A weak dollar and a market in crisis make for bargains
