Read Behind the Headlines with Overseas Property Investment

23.11.16

If a property abroad is top of your Santa wish list this Xmas, then you may wish to cast your eye over the latest industry analysis which points towards southern and eastern Europe as offering the best value property – including the popular holiday home markets of Italy, Portugal and Spain.

These are among the most undervalued housing markets in the world, according to topline benchmark data by the Organisation for Economic Development, which measures property prices in relation to local income. OECD research, plots local prices against typical wages and then sets this against the long-term average.

Whilst hugely insightful - the analysis isn't quite as all-encompassing as it may seem, especially when you factor in that all important yield indicator. To fulfil this - property investors should be asking: what asset underpinning does your chosen location have to bolster property values long-term? What is the reach and range of local transport networks, is there investment in local healthcare and education, like a university where you are buying? Without this value-added support infrastructure, the real estate offering will almost all be of the holiday home variety, (cue re-sale product competing against shinier new build and mitigating against the fall-off in rental returns low season) both of which will likely dampen future capital growth potential.

Major Spanish banks, which lent heavily to property developers before the market crashed, still have a glut of properties on their books which they are eager to offload. Some banks are wooing foreign buyers with mortgages of up to 113pc of the purchase price – which suggests such properties are being sold at rock-bottom valuations. Not a bandwagon to jump on, no matter how tempting that luxury villa with infinity pool may be.

Instead - be steadfast to the golden rule of 'less is more'. A case in point are cities with strict planning regimes, of which Stockholm is a prime example. Why? Because there is a very strong likelihood that demand will continue to outstrip supply - further pushing up values.

Classic holiday destinations like the south of France remain a savvy choice too - they will retain their value, as the 'premium' attached to home ownership in such an area is its seal of excellence safety blanket.

So might we ever get even a sniff of a savvy 'bargain' in 2017? The Algarve is showing potential. Prices dropped 40-50pc below their pre-crisis peak and until now buyers have been cautious. But, only after a mothballed halt to activity to redress the supply-demand balance, is the market now coming back.

Don't fancy putting all your property investment eggs in one basket? One alternative is to buy shares in a property company, trust or fund that is focused on high-fulfilment European real estate. Property companies and funds diversify the risk over a number of different properties. While European banks are still reluctant to lend money to individuals, property trusts enjoy much easier access to funds, especially with sovereign wealth funds eager to put money into real assets.

A further option is to invest in those companies that will benefit from recovery in the Eurozone property market. Construction companies are one obvious example, with next year's forecasts indicating that German construction firms will experience strong order growth.  The pan-European construction industry trade association estimates that this sector will continue its upward trajectory, with the likely pace of growth in the coming two Quarters doubling to around 3%.

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