Property Investment Articles
European investors look Eastwards for profits
Be aware that prices in Bratislava have already shot up by about 20% a year over the past few years as investors have latched on to its growth potential, especially as it is becoming popular with workers commuting to Vienna. However, Dare thinks it can maintain its strong growth for another couple of years — although you should not expect it to continue indefinitely. As the market matures, growth rates will slow.
Bulgaria has been proving popular because prices are lower and yields can be up to 8%. Loan rates, however, are about 7.5% — and EU membership is not certain.
Dominic Farrell of Beware the Sharks, a property company, said: “I fear Bulgaria and Romania could be the next property scandals. People have piled in because of the promise of strong growth when the countries become EU members, but accession is far from a done deal. French and Dutch voters made it clear they disliked the eastward expansion of the EU.”
Investors should also beware of areas that have been heavily promoted to British and Irish buyers. John Howell of John Howell & Co, a firm of solicitors, said: “Investors have piled into off-plan developments on the Black Sea in Bulgaria, and some parts of Budapest in Hungary, and hope to sell them when they are completed in two years. But sell to whom? I am not sure there will be sufficient demand from other investors or locals to soak up the supply, which could depress prices.”
Solicitors also warn that you may encounter problems with ownership, especially in former war zones such as Cyprus and Croatia. A recent court ruling in Northern Cyprus allowed a dispossessed Greek Cypriot to reclaim land that had been bought by a British couple.
Investors should also consider how they will own the property — in their own name or in that of a company — because that could make a big difference to returns. Howell said: “The tax rates on income and capital gains could be very different.”
Many investors borrow against the value of their homes in Britain to raise the money for an eastern European property, but you should leave some equity in the property.
If you need a mortgage, you are unlikely to find a British bank that will lend on eastern European property, but you can usually borrow in euros or the local currency from a local bank. However, you may need a deposit of at least 30%.
Now could be a good time for sterling investors to buy in euros because you will get more for your pound. Sterling is worth €1.48 at present, compared with €1.41 at the start of the year. And if you borrow in euros, interest rates are unlikely to rise for some time because of the weak eurozone economy.
Investment
Stock markets in “new” Europe have performed strongly over the past few years as investors have piled in to reap the benefits of EU accession.
The Estonian market returned 82% in sterling terms in the year following accession last May, according to Fidelity, while the Czech Republic gained nearly 75%. London's FTSE All-Share returned 10% over this period.
However, many professional investors have been taking profits because of fears of a bubble.
Credit Suisse First Boston's Jonathan Garner cut the investment bank's stake in the Czech Republic, Hungary and Poland in February, warning they had become more expensive than western European markets.
Last week's “no” votes have added more uncertainty: they have cast a shadow over the liberal economic policies of many of the new European states and over the expansion of the EU to the east. Many eastern European countries may have already joined the EU, but they are not yet in the eurozone.
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