MARGARET LEACH and her husband, Martin Holborow, never planned to build a small holiday lettings empire on the German-Czech border. All they wanted was a base as a stopover for their trips into Eastern Europe to research reports for their market analysis company Pyrabilisk. Instead, they now have a nice little earner that brings in a gross annual return of about 10 per cent — not what you might expect in a country where the property market has been all but dead in the past decade.

While intrepid investors are beating a path to Eastern Europe in search of very cheap homes with the potential for astonishing capital growth, Leach and Holborow bought in a country where house prices seem to be going in the opposite direction. According to Savills, property prices in Germany fell by 2.5 per cent last year while the rest of Europe boomed. Among the world’s big economies, only Japan put up a worse performance.

Yet it would be wrong to dismiss Germany entirely. “We went into holiday rentals to cover the cost of buying the house, but we have been successful beyond our wildest dreams,” says Margaret Leach. “We now spend most of our time here, although we didn’t really intend to.”

Although Leach still has a home in England, she has not visited it much in the two years since buying property in the mountain village of Bayerisch Eisenstein in the Bavarian Forest. The couple initially spent €100,000 (£68,000) on a three-storey house that had been built by the previous owner. As the property had been used as a bed and breakfast, it split easily into three flats. The original idea was to live in one and let the other two, but Leach and Holborow were so overwhelmed with bookings that they ended up letting all three and sleeping in the basement.

Their success spurred them to snap up a second property in the village at an auction last month. The building, with two three-bedroom flats and the potential for a third small one, turned out to be an even better bargain, at €53,000, than the first one.

Any money they had to spare allowed them to install a sauna and fitness room for guests in both houses. Although Leach and Holborow are still busy sprucing up the flats, one of the properties is already fully booked over Christmas and new year. By advertising on the internet, Leach has managed to attract guests from as far afield as Australia, although most are Germans who come to ski. “When we started out we didn’t think that the Germans would want to come to a British-owned flat,” says Leach. “But that does not seem to be a problem.”

In fact, it seems to be an advantage. With little happening in the German property market, there was little to entice Germans to invest. The competition in the holiday rentals market is not as tough as it can be in more conventional tourist destinations, which gives investors such as Leach the edge.

The World Cup certainly raised Germany’s profile as a tourist destination, however, and property investors appear to be reconsidering the country’s potential.

According to Holiday-Rentals.co.uk, Germany was the top-performing destination for holiday home rentals in the first half of this year, closely followed by Dubai and Tenerife. The number of properties posted on the website by their owners was 38 per cent higher than last year and the rise of inquiries per property rose by 18 per cent.

No investor should venture into Germany expecting to walk away with a huge capital gain in five or even ten years. The country’s potential as a holiday destination may be underrated, but even the experts have no illusions about the economic future. Kurt Sarstrup, of the Kristensen Group, a Danish property developer, believes that there are opportunities in Germany for those who do not expect too much.

The Kristensen Group, one of the biggest developers of second homes in Scandinavia, started building in Germany three years ago and is already one of the market leaders. “The real estate market is completely different in Germany,” he says.

“The country has been going through both a mental and economic recession. We have now reached the last phase of recession and people are buying again. There is potential for growth but you can’t compare it to the UK. No realistic person would think that the German market will turn around that quickly.”

Find Margaret Leach’s house at: www.holiday-rentals.co.uk/50353

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