Property Development Buying Abroad: Investing Wisely

Date Published:

04/06/2008

Many foreign property investors forego attempting to rent out their property for income - instead using it themselves and letting it to friends - and have concentrated on buying in countries that show the potential for strong capital growth. The strategy has been a sound one for the past decade: property prices have risen almost across the board in Europe over this period with many developing areas recording record growth. According to The Economist property prices grew by 131% in Spain, 90% in France and 191% in South Africa from1997-2004.

Today, many markets continue to demonstrate a 10% and higher capital growth - The Knigh Frank Global House Price Index, 2nd quarter 2006, shows no less than 10 countries returning that figure, headed by Latvia and including Bulgaria - but, impressive as these figures are, they are 'on paper' profits. In other words the markets may be growing by 10% per annum, but in order to realise a profit you have to be able to sell your property. The risk here is that there is no genuine resale market.

Bulgaria, for example, is currently considered very much a 'buyer's market': prices are low for new build properties, which are springing up in their thousands. However, should you buy a property, 'sit' on it for three years and try to sell it, you may well find yourself struggling. Why? The locals, earning a fraction of your salary, won't be able to afford to buy it, whilst other Western buyers will have a huge choice of new properties, many of which come with eye-opening incentives from the developers, against whom you simply won't be able to compete.

The risk is that you will be left with an asset you want to sell but ultimately can't - at least not at a price that you will be happy with. The smart investors are the ones who are able to enter and exit the market at the right time. It's true there is a considerable element of luck involved - there are simply too many variables involved to ever be able to accurately predict the success or otherwise of an investment overseas - however with a sensible approach and realistic attitude there is always money to be made.