Ward&Co. Property investment specialists

In the last few years the Capital Growth of property in the UK has outstripped the rise in rental rates. This means, that at least for now, to buy a UK Buy-to-Let property, unless you get a real bargain and there are very few around, you will need to put in a relatively large amount of your own capital. With rental yields in the UK on the decline and the increase in UK rental property available, investors are turning to the lucrative overseas property investment market for higher returns.

So how does going overseas vary from the UK market?

The overseas property investment market can have quite a few benefits over the UK.

Lower Property Prices

The UK housing market is a competitive and mature market. The UK public is generally investment and property minded and has one of the highest percentages of property ownership in Western Europe; mainly due to the push in the 80's to sell off council owned property and the continued lack of new social housing being built. This has created high demand which has fuelled well documented increases in property prices and made it more difficult for first time buyers to get onto the property ladder. In turn, this fuelled a boom in the UK buy-to-let market which led to price rises that the rental market could not sustain. The recent credit crunch has also made BTL property ownership in the UK difficult as BTL mortgages are classed as sub-prime and are becoming increasingly difficult to get without a large deposit being needed.

Other parts of the world don't have the same attitude as the UK when it comes to property ownership and in many less developed countries, property prices are lower. A word of caution: A low entry price doesn't mean it is a good Investment Property. Unlike some "Property Investment companies" we don't provide Investment Property opportunities in the Eastern Bloc, despite their very low entry prices. There are a number of reasons for this which we'll go into later.

 

Low Interest Rates

A Euro based mortgage is typically running at several basis points lower than a typical UK one. This means on most European and Overseas Investment Property you can get a mortgage from an overseas bank at a lower rate. Increasingly, UK lenders are establishing themselves in overseas locations to access a market where mortgages can be provided in foreign currencies.

 

Holiday Rental Market

Buying an investment property overseas in the right area means that you'll have holiday rental potential. The holiday rental investment model is very different from residential letting as you need much less occupancy to be able to cover all your annual cost and make a rental profit. Weekly rentals in 'up and coming' or established holiday areas provide the chance to generate high rental yields as prices are at a premium for leisure and short term letting. Although property prices in established areas are higher than up and coming areas they are usually matched by higher volumes of visitors.

 

Exchange Rate

Sterling is very strong in the global economy and an added advantage of buying abroad is the exchange rate you'll currently get.

 

Less Hassle & Lower Running Costs

Generally speaking there is a competitive Letting Agency Market in most holiday areas, meaning most of the good ones are long established, know what they are doing and are competitive to keep your property on their books. They are also set up to offer Car Hire, Excursions, etc which they earn commission from, something a UK agent doesn't have the opportunity to do.

They have smooth check in and check out processes, tried and trusted cleaning and laundry services. The whole ethos behind the tourist industry is to keep visitors coming back year after year as, if they don't, the reputation, and hence the livelihood, of the letting agent can easily be lost. There is plenty of choice and if you stick to the main Letting Agent's you'll get a competitive rate, a property that's let to its full potential (Letting Agents only earn when the Property is let) and hassle free rental. In addition Tax and property running costs in most European countries are lower than the UK.

Buying Overseas does carry its risks

Oversupply. There are many overseas properties available in various countries. The recent property explosion in Eastern Bloc countries has given rise to 100,000's of low cost properties. Whilst this makes entry to these properties very attractive, it can be very difficult to sell the property due to the over supply of available property on the market.

Tourist Activity. Holiday Rental in many areas is almost 100% dependant on tourists. Check out how many low cost airlines go to the area you are considering, how much tourist traffic is currently visiting that area and whether the visitor numbers growing. Infrastructure is important so research the general transport links like main roads, local airports & main rail lines.

Stability of the Economy. What happens if the local economy has runaway inflation or is fundamentally unstable? This can seriously undermine any investment and affects the true capital growth of your property.

But more serious than all of the above is not understanding the local market. Every overseas market is different with its own laws, customs and economic data affecting property prices. It is lack of knowledge that creates the perception that overseas is a higher risk market. If you research the markets, and learn from the information you read, you can spot the next property hot spot. Partnering with a company that understands overseas markets is a key way of gaining this information and making an informed choice.

In summary it's easier to find investment property overseasthan it currently is in the mature UK investment property market. It can also be less hassle. Buy a property for a holiday let and if you want to, you can also get the opportunity to use it yourself. The key to a successful overseas investment property is getting the country/region right and partnering with a company that understands that region.