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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.”

Poland best new 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.

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.”

A change of culture may make Germany a better performer in 2007, with nationals now opting to buy instead of renting. “Growth is starting in cities such as Berlin where, incredibly, just 13% of the population own their own homes compared to 43% in Germany as a whole, 66% in the UK or 85% in Spain,” said Assetz. “Interest in residential property is starting to increase, pushing up prices which are now typically still just €200,000 (£137,120) for a two or three-bedroom 100 square metre (1,100 square foot) apartment in a beautiful early nineteenth century building in an excellent area of central Berlin. That is just €2,000 a square metre compared to five times that or more in Paris, London and some other major European capital cities.”

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."

Related news
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 ate still a major draw. FC Exchange warned that Brits may not be so keen on Spain based on recent real estate scandals.