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House price decline reignites Brits' zeal for property abroad

Or did our enthusiasm for a place in the sun never go away? Linton Chiswick questions whether there are really bargains to be had in places like France, Spain and the US.

 

Has Brits' enthusiasm for a place in the sun been reignited? Linton Chiswick questions whether there are really bargains to be had in places like France, Spain and the US.

Putting aside regional variation, UK property prices appear to be on the slide as the year draws to an end. And with lending likely to remain constrained into 2011, unemployment on the rise and an imminent VAT increase that will help bolster inflation  (and add to pressure to raise interest rates), the outlook for UK residential property is unlikely to promise much in the way of capital gains. But what about prospects abroad?

By the time the debt crisis hit, almost half a million Brits owned foreign properties, half of them in either France or Spain, many of them the very over-priced, under-designed newbuilds that played their part in the market emergency. It’s no coincidence that the last time it was possible to talk about the investment potential of overseas properties without provoking worried glances, the 'PIGS' countries were attracting much of the heat. Debt built their property markets, now it’s slowly dismantling them again. And yet – so raised are we on the faith that there’s always a house somewhere that will make us money – we might just be property shopping abroad once again.

Window shopping

According to Primelocation International, web searches for Spanish real estate increased 43% this year. Primelocation interprets the data as window shopping with a view to buy. For all we know it’s a 43% increase in the number of investors tremulously calculating the current value of their own properties and wondering at what point they can sell and suffer scorched fingers rather than the full 3rd degree.

The message from the industry is that there are bargains to be had. Mass repossessions by Spanish banks, following sour deals with property developers, mean discounts of 25% and more. But 25% of what? If a 25% discount is what it takes to draw a potential buyer to Primelocation, isn’t the conclusion that property is still 25% overvalued? The Spanish property register reports an increase of 13% in transactions in the third quarter of 2010 compared to 2009. But the increase is from a low base, and a recent survey of Spanish developers didn’t reveal much optimism. Ninety-five per cent described business as worse than it had been four months earlier; 87% didn’t expect the situation to improve next year. With pressure to raise and refinance a colossal amount of debt in the new year, the country’s Moody’s credit rating is currently tottering.

Value rather than trendy locations

And yet Spain, where property’s taken a hit, has overtaken France, (traditionally – and as recently as April – Primelocation’s most popular international search location with the Brits) and leads it by 20%. The French property market hasn’t suffered nearly so badly. The implication is that the foreign market is being driven by perceived value rather than fashionable location.

And there’s no greater evidence of this than the sudden fascination in the US’s decimated residential property market. Primelocation searches for American second homes grew 90% in the last 12 months to challenge Spain for second spot. There are stories of Brits on business trips to Florida, unable to believe what they read in the local property pages, returning home with Miami Dolphins t-shirts for the kids, duty free perfume for the wife, and a $70,000 apartment in trendy South Beach. According to American house price indices, prices in Miami have halved since their 2006 peak.

US 'repo-bargains'

British investors, too, are being targeted by US-based companies offering repo-bargains in less glamorous locations (Detroit, anyone?), for as little as £30,000 with high (promised) rental yields. Raised on the UK market, it’s hard to imagine going wrong buying a £30,000 house. But it is.

US foreclosures are running at around 25% of all residential sales. Unemployment remains alarmingly high, the banks own disproportionately high numbers of properties in forceclosure hotspots like Detroit and (parts of) Florida, and – unlike the UK – there’s plenty of space to go around. Under these conditions, it can take a very long time for a region to dig itself out of its economic doldrums; if, in fact, it does at all.

The Spanish and American markets might be getting the action (although I’d suggest a lot of that action is PR-based rather than economic), but nobody’s making money yet. Volume may be up in Spain, but – according to the most recent Knight Frank Global House Price Index – prices are 3.7% down on the year. (Add that to a further two years of falling house prices and there are approximately half a million Brits currently losing money there.) In the US, a modest 0.6% rise doesn’t represent the repo-torn neighbourhoods combed by bargain hunters. In Florida, prices are 20% off, and for every enthusiastic realtor, there’s an analyst wondering whether Detroit or Florida prices will return to their 2006 peaks within current investors’ lifetimes.

In France, however, prices are rising; they are up 8.6% on the year.

Not everything that looks like a bargain is one.

28 comments so far. Why not have your say?

Dislexic Landlord

Dec 19, 2010 at 09:23

I have looked at investing overseas and came to the conclution it just was not for me

If I was to live over seas I would rent and invest cash here its far safer

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brian redpath

Dec 19, 2010 at 09:41

If you buy a house as a home - even a holiday home, provide you can afford it, use it and enjoy it its a good life investment - investment returns do not just have a solely financial face - perhaps something some readers might have forgotten.

Rising French property market - just look at the low loan rates which you can arrive at "Fixed" for duration of the loan, also drop into the equation that a lot of French like holiday homes in their own country, and that Capital gains after 15yrs ownership is zero %, might indicate why growth continues.

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mikest

Dec 19, 2010 at 10:25

The 3rd qtr increase is largely due to a tax break from the Spanish Government for any house bought before 31 December. There are many ‘bargains’ to be had but only for those with the patience to sift through the rubbish.

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jeff lampert

Dec 19, 2010 at 10:38

One day I am sure buying in Spain will be a very good idea!

But not to I properly comprehend the "supply" side of the market.

http://www.accountingweb.co.uk/blogs/jefflcbba/mad-lemming/1500000000000

Until then I will rent!!

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ian james

Dec 19, 2010 at 11:33

the euro drop in value is fuelling interest in France

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Keith Snell

Dec 19, 2010 at 11:54

Using statistics such as enquiries about properties as any sort of guide to sales is in itself unreliable, let alone using prime locations. personaly I would not invest in property in any country other than the UK unless I had a very thorough knowledge of property and property investment in the country concerned, there are far too many pitfalls including very different property law and very little protection from fraud.

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myopia

Dec 19, 2010 at 12:52

http://www.nytimes.com/2010/12/18/world/europe/18spain.html?_r=2&pagewanted=1&partner=rss&emc=rss

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John R

Dec 19, 2010 at 13:07

GBP30,000 for a house in Detroit?

Someone is making a lot of money on those, you can pick them up for GBP1-2,000.

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Gatser

Dec 19, 2010 at 13:44

RENT RENT RENT!!!

Put your £200k into a fixed rate at 4% = £8,000

You can rent a nice apartment with shared pool for LOTS of weeks with

£8,000 and you will still have your capital safe in UK.

Take those Rosey specs off!

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Dislexic Landlord

Dec 19, 2010 at 14:07

Gaster

Such a sensible comment

I would split the 200k into deposits of 15k each but 13 flats of 60k each and make possitve cash flow of 2300 per flat x 13 and make 29900 on a fixed rate mortgae of 5 years and you will make good money

Why would anyone one buy over seas when the bargins are right here in the uk

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Eric Gunder

Dec 19, 2010 at 14:25

In France it is safe to buy property, and taking a 15-year view, there is no capital gains tax. Houses which newed some refurbishment can be a great investment for the semi-retired DIY person. I invested in some holiday properties15 years ago and prepared to sell now.... http://www.privatevillage.co.uk

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Judith Buttigieg

Dec 19, 2010 at 14:43

A place in the sun ? try Malta (no Council Tax for a start)

Conveyancing protects both parties once the deal is agreed, no gazumping or backing out unless you can prove you really really don't have the money. Drawback is there's a lot of newbuild rubbish around so you need good survey done with competent architect before commitment. No captial gains after living in the property for more than three years. Just three hours' flight from London airports. Easy to rent first so you can make final decision on the area, etc. before commitment.

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G S = Go Short

Dec 19, 2010 at 15:21

As somebody who 10 years ago bought a home in Florida, I can speak from experience, DON'T DO IT.

It has been the steepest learning curve ever, Realtors do NOT tell you all you need to know, they are only interested in their commission, so the quicker they get you to buy the better. Our home is mortgaged, so we rent it out to pay the bills, well, that was the plan, and it worked great up to about 3 years ago. now its draining me monthly, causing a lot of financial problems here at home. I am ready to simply walk away from it now, I could try to sell it, but would be no better off, so what would I need the hassle for?

The bubble burst and lots of people have lost everything, I am fortunate in that I can just about hold my head above water, but at the end of the day, I am subsidising other peoples holidays.

If I can hold out a bit longer, I will be selling it, I just hope prices recover sooner rather than later. As for prices in Florida being off by 20%, thats "Bovine Excrement", try 50%.

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paul smart

Dec 19, 2010 at 15:25

After a lot of home work and the UK market going into 'bubble' status, in 2006 and 2007 I invested in seven properties in Western New York State. I am a professional property investor and landlord with over 40 UK properties and 18 years experience- it's how I make my living.

If your buying in the less celubrious areas of the US and renting to low income/ dss tenants (as I do in the uk) you are not looking at capital growth- forget it, it doesn't happen as in the UK and is unlikely too.

Instead there are very cashflow positive returns to be had without a doubt- typically I paid $30,000 for a property that returns $750 per month. Thats a 30% gross yield. Unfortunately as you may expect the success of the venture depends purely on the managers you put in place to look after your properties.

I have been in touch with many UK investors and we have all been subject to blatant, unquestionable lies from these managers about properties being empty when they are not, tenants not paying the rent when they are and bogus repairs.

After a rocky start spreading myself with a number of managers and then getting away from the ones that showed themselves to be rip off merchants I finally got positive cashflow. However I have sold all but two apartments (which I have a sale agreed on). I have had enough and want out. I do not like being out of control and at somebody elses mercy.

I have made money on the sales- a modest price increase coupled with the currency game (I bought at a rate of $2+ to the pound).

I would advise anyone to be careful with this venture if thats what they are considering.

I took a calculated gamble with open eyes and money I could afford to lose.

If you don't have the money to lose then I would say don't do it.

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NICK GREENWOOD

Dec 19, 2010 at 17:35

The Market in France is about the quintessentially French aspect of LIFESTYLE. It is a long-term commitment to: Medieval architecture, stone buildings, food, wine, markets, affordable restaurants, climate, friendly and welcoming neighbours, lack of traffic; lack of disrespectful yuf (youth) and lack of STRESS.

I could go on, as could so many ex-pat friends living down here in SW France!

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Geoff Evans

Dec 19, 2010 at 17:40

We live in Cyprus and our holiday home is in England but we have a commercial rented property in England which is on a 3 year revolving lease and that works very well for us though we pay U K income Tax on the rent which,of course is much higher than the 5% Income Tax we pay as retired Cyprus residents.There is effectively no council tax in Cyprus so it's a very good proposition.

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Eric Gunder

Dec 19, 2010 at 18:24

I can only agree with Mr Greenwood, the South of France is more than a property investment, it is an investment in a lifestyle...

http://www.privatevillage.co.uk

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Chris Harris

Dec 19, 2010 at 19:08

Eric

Are you shameless?

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NickNuts

Dec 19, 2010 at 19:22

And this is all according to who? Primelocation International

I wouldn't touch property with a bargepole at the moment. Anywhere.

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chris johnson

Dec 19, 2010 at 19:30

I suggest the same philosophy regarding buying a house as buying an antique or a painting - or indeed any collectable. If you like it and it seems good value (or fairly priced) and you can afford it buy it - otherwise walk away. I own 2 properties in delightful southern Burgundy, renting one out for holidaymakers. It is a joy and pleasure to be there and the property appreciation since I bought is a bonus. Nick Greenwood describes the benefits of France in a nutshell.

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LANDLORD X

Dec 19, 2010 at 20:20

For foreign investors, UK proerty is looking rather good value with the fall in the value of the £££. Foreign investors remain active in London and Southern home counties - if they can spot a bargain why can't we? UK may lack glamour but it has cast-iron property laws and a very robust rental sector - unlike many other countries. I have looked at other countries to invest but still prefer my own back yard in the South of England - even if values fluctuate here, cashflow is very good at the moment so you win either way. Might look to bag a bargain in Spain when the market there finally collapses next year - but it would have to be at a rock bottom price and purely for lifestyle, not investment.

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alan franklin

Dec 20, 2010 at 07:04

Good article and sensible comments. Paul Smart is spot on with the American situation. We have owned properties there, on and off, since 1983 and my wife is American.

You have to remember that there is a constant stream of repair bills plus where we operate the landlord is responsible for all local taxes. This is whether or not the property is tenanted. So, just as in Britain, an empty property can easily cost you a lot of money. If you don't pay you are rapidly repossessed.

I worked out our end of year US tax return yesterday and our properties return about 3.5 per cent. That is with intense input from us: we manage directly, know the scene well and have good tenants.

However, not many weeks pass without some kind of problem: property investing is not "invest and forget" : for that, buy shares. For example, the average outgoings on two properties in the Mid West has been $7,500 each over the past three years. Think new boilers, air conditioning, roof leaks, floods, new stoves, redecorating,etc etc, plus the tax and insurance.

We look at US home listing sites regularly and there are stupendous "bargains" to be had. However, remember to look up the annual tax to be paid on those empty "McMansions." You will probably get a very nasty shock.

I would not be investing in property anywhere right now - it is still going down and the US is not at the bottom. Expect lots more foreclosures there in 2011.

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Geoff Evans

Dec 20, 2010 at 08:17

Listen Guys--Commercial property is non maintenance,is on long leases and usually gives returns close to double figures.The down side is that the last government made it so that you have to pay rates if the property is empty which had not been the case.There are some advertising and legal costs involved in the lease but it's still better returns and more reliable than domestic.

If you want property related in vestment then you could do worse than look at Brandeaux Student Accomodation fund,they buy and let to students and turn back close to 10%.If anyone is interested contact me and I'll give details.

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Ash Stevens

Dec 20, 2010 at 15:54

And how do we contact people from here Geoff ?

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Geoff Evans

Dec 20, 2010 at 16:25

We are geoffandlizevans@cytanet.com.cy

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k g

Dec 20, 2010 at 16:42

Are people not looking and dreaming due to all negative news, bad weather and for shear OMG 'look how much that has crashed, I'm glad it could never happen here....'

Well 95 % of the those looking wont be able to sell or remortgage their property here and those country are a good 2 to 3 years ahead of our 'correction''

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LANDLORD X

Dec 21, 2010 at 11:55

Outside our dreary little island, do not forget that many parts of the world are booming: Turkey, Australia, Brazil, India, China, Malaysia and even parts of sub-saharan Africa, to name but a few. This may help support the economy - and property values - in those parts of the UK which are more exposed to international markets and more popular with foreign nationals - so London, Surrey and regional tourist centres

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Dave c Trunnion

Dec 23, 2010 at 09:15

The French government is abolishing the tax deductibility of interest payments on mortgages at the end of this year. It would be interesting to see what effect that has on house prices next year?

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