The overseas property world emerged different from the crash, and has changed since, but safety is still the most important consideration for the majority of investors, whereas before the crash returns were the greatest consideration. However, with the Eurozone still in real danger of collapsing, and cash being devalued rapidly by inflation, currency fluctuations and abysmal savings interest rates, what is safe?
As I said, during the boom returns were king. So much money was being made from property, and here we had overseas property affordable to the masses, but people got carried away. Many were buying property abroad without even having seen it; buying off the plan and off the internet with nothing more than a computer generated image (CGI) of what the finished property would look like, and the convincing word of a friendly agent that it would be a profitable and rewarding investment.
Once bitten twice shy, and we are all a lot more cautious now. In fact, it is more than that, post-crash overseas property buyers aren’t just buying the same properties with more caution and research, they are putting returns on the back burner in favour of finding a safe opportunity.
This has changed the overseas property world a great deal. Whereas during the boom emerging markets were kings-of-all, Albania, Morocco, Tunisia, regulation and distance didn’t matter as long as the returns, or I should say the promised returns were good it was a winner. In the immediate aftermath of the crash the opposite was true; investors were barely touching anything apart from established markets like France, Italy and the Caribbean.
The Caribbean Leads the Overseas Property Recovery
The Caribbean was one of the first overseas property markets to see sales as the dust of financial ruin settled over the world. Not cheap (who said risky) Caribbean markets like Dominican Republic, but premier markets like Trinidad and Tobago, Grenada and St Kitts and Nevis.
Cash was a scary commodity to hold, so anyone with any real amounts of it was keen to put it into something safer. This first triggered a rush on gold, but as the price of gold soared, property in places where property was holding its value was the top choice. Property held its value in places where only the wealthy can buy, as the wealthy aren’t forced to sell quickly when things go bad, so there are no price drops for a quick sale and property holds its value. Incidentally property in these locations often recovers first from downturns and usually grows quicker during up cycles as well.
Property in St Kitts and other places where property costs around £250,000 to £500,000 shone in particular, because they obviously have a wider pool of people who can afford to buy there, i.e. not exclusive to the super-rich. But St Kitts also benefited from its residency through investment program — who didn’t dream of emigrating to a Caribbean beach when Northern Rock fell apart.
Changing Perspective of Safety
Most overseas property buyers are still driven by the same logic, buying where property is holding its value. Swiss and French ski property is among the most popular in the world right now, and the super-rich from around the world are buying prime property in prime locations in the likes of London and Paris. Likewise French leasebacks have seen a revival because the safety offered by a government guaranteed rental yield makes up for the relatively small rental yield.
However, people don’t get quite the same feeling of safety about buying in France and certainly in Italy with the potential for the collapse of the Euro still on the horizon. What’s more, not everyone can afford to buy in those locations and optimism is once again on the rise. As confidence continues to grow that we are indeed in recovery, more people are seeking to profit from that recovery. Safety isn’t taking a back-seat just yet, but people are allowing their perspective of safety to bend if it allows them to get in on the action.
Turkey and Emerging Europe
Enter Turkey stage left… Against the backdrop of a crumbling Europe, Turkey stands out like fluorescent yellow on black. Between 2002 and 2009 the Turkish economy grew at an average rate of 6% per year, while constant reforms made it one of the most stable economies in the world, backed by a strong banking system and fiscally responsible government. But before the crash Turkey’s investment potential was hampered by its slim chance of gaining EU accession. This is no longer a problem, allowing Turkey to shine on its own merits.
Turkey’s has the fastest growing population in Europe, and was the fastest growing economy in the world in the first half of 2011, with no figures yet for the second half. The population is growing fastest in the major cities, especially Istanbul, and the combination of the growing number and growing affluence of the population is causing incredible demand for property to buy and rent. According to the Global Property Guide Istanbul property is severely undervalued, with a per sqm price of just 2,386 Euros making it the 8th cheapest major city in Europe.
While Turkey may not be the only market capable of achieving good returns, when you weigh in the safety aspect few can match it. Romania looks like a good bet to see property prices grow over the next 2-5 years, and solid rental yields as well, because while property prices have fallen drastically of late, the economy has enjoyed a strong recovery from the crisis. Latvia experienced the same disparity and it went from being one of the worst performing property markets to being one of the best performing markets in the world last year.
Romania is in the EU, which means it has passed a lot of checks as to its safety as a place to buy property. But it is not in the Euro, and this is definitely a plus at the moment.