If your UK property investments aren’t paying out as well as they used to, is it time to look elsewhere in the world? Certainly you won’t be alone, as more and more investors see the value in “fly to let”. The signs point, once again, to residential property being a safe (and rather enjoyable) way to invest your money. Here is why.
1. Doable
According to a major new report, investment in overseas homes rose by over 20% last year. There are many reasons why international property investment is growing. Technology is certainly helping. Easy translations via products like Google Translate mean we can search online for property and speak to vendors directly, without needing to leap on a plane every weekend. It all just seems so much more doable.
Renting property out has never been easier via AirBnb et al, although increased competition is an issue too. And better house price data globally has taken a lot of the guesswork out of predicting capital growth too. There also many more guides available. You are not alone!
2. Home is where the heart is
The failure of many high street stores, as well as the move to home-working, has made commercial investment a riskier proposition, while we will always need homes. In the meantime the population continues to grow and to move towards the cities. Climate change cannot but make long-term property ownership in established cities more attractive.
Homes in Canada, where prices rose 42% in the past five years
3. Rising prices
According to the European Union’s Eurostat house price data, which found that only Italy has seen a small fall in prices over the past year. And that was only 0.6%.
Globally, of 69 countries analysed by the Global Property Guide, only six saw declining values over the past year (and relatively few us wanted to invest in Ukraine, Peru, Qatar or China anyway). Even countries like Cyprus and Greece have turned huge losses over the past five years into small gains in the past year.
4. More residential investment than ever
Residential investment across Europe was worth €35.8billion in the year to the third quarter of 2018, according to a report from CBRE. This represents a 21% increase on the previous year. CBRE expects this figure to increase further in 2019, given the high volume of capital targeting the sector!
5. Better than bond yields
Looking at current economic conditions, it’s hard to argue against a carefully planned property investment in 2019. For both the UK and Eurozone, average property yields remain strong, and comfortably above bond yields. In the UK, property yields are just over 5%, while UK government bond yields are under 1.5%. The Eurozone’s average property yields are just under 4%, while Eurozone central government bond yields are currently under 0.5%.
6. Low interest rates
At the same time, interest rates remain low. In June, the UK’s 12-month Libor rate was around 1%, while the 12-month Euribor was still in negative territory at around -0.17%.
Thanks to low central bank rates, mortgages are cheap and widely available across Europe. For UK buyers, investing with a euro mortgage could be a way of minimising exposure to today’s poor exchange rate. Rather than transfer funds to euros now, when sterling in weak, why not purchase with a cheap euro mortgage? You then have the option of redeeming it a later date, ideally when sterling has strengthened.
If you’ll be letting your property in the domestic market within the Eurozone, it makes sense to have your mortgage in the same currency as your rental income, i.e. euros.
Major banks in key countries in Europe are eager to lend to non-resident buyers, typically offering LTVs (loan-to-value) of up to 70%. They come with variable or fixed rates, and typical terms of up to 20 years. Don’t expect to get interest-only deals though.
7. Check the trains
Transport connections are the most important factor when selecting a city for investment, according to investment professionals surveyed in a recent PricewaterhouseCoopers (PwC) report, Emerging Trends in Real Estate (Europe) 2019. What else was important? Other key considerations include the availability of assets to invest in, especially new development opportunities.
Beauty and connectivity in Lisbon (Alessandro Cristiano / Shutterstock.com)
A city’s projected economic performance, housing affordability and attractiveness to talent was vital. Which could explain the damage to London’s investment appeal compared to a city like Lisbon (which topped PwC’s poll of investment-worthy cities). On the plus side for a city like London, investors see the appeal of a strong regulatory environment, digital connectivity and city leadership.
8. New city hotspots
Lisbon is ranked number one European city for overall investment prospects in 2019, according to the PwC report. Complementing Portugal’s buoyant economy, the city was favoured for its quality of life. It’s proving particularly popular for international companies looking for a post-Brexit base in Europe too.
As a relatively small market, Lisbon offers ‘outsized returns’. Portugal’s tax-friendly Non-Habitual Residency (NHR) and Golden Visa schemes are helping to attract wealthy foreigners, helping to bring more money in the country and raise awareness.
Ranked second is Berlin. Ticks for the German capital include pent-up demand, the dynamic of the government, the city being a tech growth capital and the low cost of rents and operations.
Also in the top ten are Dublin, Madrid, Frankfurt, Amsterdam, Hamburg, Helsinki, Vienna and Munich.
9. Not just houses
The traditional buy-to-let is just one of many types of residential investment options you can consider in 2019. Other sectors identified in PwC’s report as having the best prospects include student housing, hotels, retirement and assisted living, serviced apartments, social housing and co-living. In short, a combination of ageing populations, more students, smaller households and people moving to the cities, is creating new opportunities for more adventurous investors.
10. Access to investment funds
Not convinced you can afford to invest abroad? Don’t rule it out until you’ve explored the different ways to raise money available to you. The pension freedom changes mean over-55s now have the option to use funds in their pension pot for investing in property. If you own your UK home outright or have lots of equity in it, you might want to consider a lifetime mortgage – essentially a type of equity release. There are different types to suit different requirements.
Some overseas mortgage brokers can now help you to re-mortgage in the UK specifically to purchase abroad. None of the above should be done without taking professional financial advice, of course.
But… threats
So what should we be worried about? Not much, on the whole. According to CBRE, however, potential challenges facing the European property sector in 2019 include unhelpful legislation, such as rental regulation. Higher buy-to-let and capital gains taxes have certainly impacted UK investors. Countries like New Zealand and regions such as Vancouver have put measures in place to limit overseas investors. A simple lack of properties available to buy is another concern.