Property investment > investment

Will sales be driven by investors, lifestyle buyers or a combination of the two in 2007 and, more importantly, where will they buy and why?

Speaking on a panel at the recent live show about the state of the market in 2006, and predictions for 2007, Matt Havercroft, editor of A Place in the Sun, said that all of his readers have expressed an interest in the investment aspects of overseas property but lifestyle is still one of the main drivers. “The variety of countries that readers now expect coverage of is based on demand for the next big thing,” he said.

This is borne out by the results of a reader survey undertaken at A Place in the Sun Live. The top 20 destinations includes a mix of old favourites and new markets which include (in order of the most popular): Spain, France, Bulgaria, Turkey, Cyprus, Greece, Portugal, Italy, Cape Verde, USA, Croatia, Morocco, Caribbean, Egypt, Dubai, Canada, Thailand, Montenegro, South Africa and Australia.

While the appeal of Spain and France is still strong, due to its close proximity to the UK and its established expat communities, a new generation of investor-focused buyers are looking further afield or for pure gain.

Also speaking on the panel, Simon James of Property Frontiers confirmed that the majority of its investor buyers were wholly focused on growth, with many still buying in Dubai and Bulgaria. “Investors want diversity to manage risk and maximize gain,” he observed, commenting on the thinking behind its new global property fund.

This view was echoed by Ben Mason of Someplace Else who said that demand for Brazil and Montenegro has soared in the last six months compared with little or no interest last year. With buyers and investors still pre-occupied with new hot spots, Mason said that Lithuania is becoming more popular and had even met someone hoping to promote property investments in Togo.

But are investors still interested in far flung destinations for pure growth or are they now more interested in the lifestyle elements a bit closer to home?

Less risk more lifestyle

Based on the performance of the UK buy to let market, and impressive growth in places like France and Cyprus, property investment specialist Assetz believes that emerging markets will be less appealing to UK investors next year.

This view is based on the assumption that most Brits have opted to buy in places like Bulgaria and Croatia because of the prospects for capital gain. With growth slowing in these markets, and picking up in the UK and France, the firm claims that UK investors will prefer the latter because they offer much lower risk.

“This year has been one of strong and sustainable housing market growth in the UK,” said Assetz. “The six major UK house price indices show an average of 8.7% annualised growth for the twelve months to October 2006, primarily as a result of the continued imbalance between supply and demand. With lower risk, low purchasing costs and the prospect of self-management, many investors will choose UK buy to let rather than overseas holiday lets in 2007. This will be sensitive to interest rates but these are thought to have peaked at 5%.”

The firm also highlights massive price rises in London, with the prime central locations of Belgravia, Knightsbridge and Mayfair promising ‘price rises of 100% in real terms’ over the next decade. The firm also claims that city workers (with huge bonuses), international business people and jet setters all view London as the place to own property. “The weight of money versus shortage of supply in these quality locations will drive a dramatic price shift,” said Assetz. “Mortgages are not a concern for most and interest rates will have little effect on this market.”

High growth is still available in the new accession states, however. Figures from latest Assetz Property Investment Tracker shows Poland has risen from third position to the top of the table. Assetz believes that this is as a result of lenders halving the deposits required to invest in property to just 15% and good economic growth. “This has raised the potential returns dramatically and will continue to do so as long as prices carry on rising consistently. Concerns are primarily over sourcing good property in the face of strong competition from local buyers,” it explained.

Investor interest driven by new mortgages

The cost of borrowing is also a major part of Cyprus’ appeal, it said: “When Cyprus adopts the Euro in 2008 it will have to decrease interest rates to the currently lower Euro rate, making borrowing cheaper, which is likely to further strengthen the property market.” Turkey’s burgeoning mortgage market will also promote growth. “Those looking to capitalise on emerging markets will be keeping a close watch on Turkey in particular, where mortgages were introduced in October 2006 enabling investors to borrow up to 80% LTV,” said Assetz. “Mortgage rates are quite high at 5.9%, but with capital growth strong at 20% and a surge in demand for property by local people pushing up prices, Turkey is making an impression on international holiday home investors.”

The Property Tiger, a property investment company led by a successful property investor, points out that 75% buy-to-let mortgages are currently available on Mallorca at 4.45% interest which will make this established holiday rental market more attractive to UK investor buyers.

Bulgaria , which performed so well last year with 36.6% growth, will probably see about 10% growth this year. Assetz attributes this fall in prospects to an immature mortgage market, saying: “Large deposit requirements with Bulgarian mortgages (minimum of 35% of the purchase price) are the prime reason that this level of growth does not allow it to compete with the UK, France or Cyprus in terms of total returns on cash invested for the investor. While Bulgaria still has value as a holiday home destination and is likely to be a reasonable investment for the long-term, the days of instant gains are over for the time being.”

Commenting on the Index, Stuart Law, managing director of Assetz, said: "There has been a slight lowering in the rate of growth in many countries during 2006 and the UK is the first to bounce, but I suspect many others will follow next year including France, Spain and Bulgaria. With the UK performing so well, many investors will be opting for the low-risk approach and keeping their money in UK property, now it offers strong returns that can compete on the international stage."

A survey from FC Exchange predicts that the best countries to invest in next year will be Bulgaria, Cyprus, Central Portugal, America and France. Based on its knowledge of finance and international markets, the specialist has considered a range of criteria for its predictions. These include consideration of individual economies, the strength of each currency, and the supply and demand that is already present in each market.

FC Exchange said that extensive World Bank funding would help to improve Bulgaria's infrastructure and tourism industry, and thus its ongoing prosperity, while Cyprus’ tax environment would attract more buyers (only 5% flat rate of income tax). The US promises gains based on the pound’s very advantageous exchange rate against the dollar (2 to 1) while France’s close proximity, culture and lifestyle are still a major draw. FC Exchange warned that Brits may not be so keen on Spain based on recent real estate scandals.

The first annual report on demand from UK buyers from the Association of International Property Professionals (AIPP) found that nearly a third (31.6%) of overseas properties bought by British buyers are in Spain, with France in second place (18.9%). However, Bulgaria is now the third most popular country for UK property buyers, according to the report, with 7.7% of the market (the US came a close fourth at 7.5%).

A new life abroad

Emigration and relocation will be major drivers in 2007, with data from a range of official and industry sources highlighting what appears to be an exodus of Brits abroad.

This may explain why demand for Spain and France is still predicted to be high in spite of prospects for much lower growth. A recent survey undertaken by Kyero.com found that one in three Brits planned to retire or emigrate to Spain, with location important to 97% of respondents. It also found that the majority (73%) wanted existing or resale property.

However, a new study by the Institute for Public Policy Research (IPPR), showed that Brits are emigrating much further afield. While Australia and Spain are the top destinations for British emigrants, figures from IPPR show a rise in the expat populations of the UAE, including Dubai (55,000), Pakistan (47,000), Singapore (45,000), Thailand (41,000) and China (36,000). It found that, in total, around 41 nations each have at least 10,000 permanent British residents.

It seems, then, that choice will be a key factor in 2007. Whether Brits are buying for investment, lifestyle, retirement or relocation, they will want to be presented with as many destinations as possible. For those focused on several key countries, agents should be able to offer as much information on the regions as they can.

In addition to an extensive portfolio, investors and IFAs will also want agents and developers to provide information on a variety of property investment options and even access to mortgage finance through favoured partners. As the demands of the market evolve, the industry will have to adapt its offering to optimize sales opportunities.

What do you think? Will the ‘new’ markets continue to attract investors – amateur or otherwise – in 2007 or will the emerging regions of more established markets prove more popular with British buyers? Send your comments to the webeditor@opp.org.uk