5 reasons to invest in property abroad
In Britain only two things are certain, rain and taxes. With torrential weather and recent Chancellor’s assaults on our buy-to-let profits, many are looking for that investment property in the sun. But while it might be great for your tan, is it a sound investment? Property Guides has been offering expert help to overseas buyers for 15 years. Senior Editor Christopher Nye explains the benefits of investing abroad.
A decade ago everyone you met seemed to be popping over to Bulgaria to buy a ski property or putting down a deposit on a couple of Spanish off-plan homes. That GBP/EUR rate of €1.50 looks awfully tempting in hindsight too.
Then we got our fingers burnt with the financial crisis, unbuilt property and dodgy developers, the pound dropped to €1.10 and we went back to British buy to let. Now British investors are back. Investing abroad is much easier than ten years ago and, arguably, more profitable than the UK. Here is why “fly to let” is back on the agenda.
That Huddersfield student pod might offer tempting returns but you probably won’t want to vacation in it. Buy an apartment on the Costa Blanca, on the other hand, and you have a variety of potential revenue streams and when it’s empty you can use it for yourself and your family. You could maybe even retire there one day!
When deciding between holiday lets and long-term tenants, each carry hassles and risks. Holiday lets pose less risk of defaults and difficult tenants, and for the shorter time they’re occupied the returns can be huge. However, the costs of marketing, weekly cleaning etc. take a chunk out of your income.
On the positive side, many popular destinations are focusing on bringing more tourists during the “shoulder seasons” in the spring and autumn. On the negative, the risk of increased green taxes on flights cannot be discounted in the longer term.
This is where overseas destinations are really scoring over UK property. According to the European Union, only Italy saw a price fall last year (of just 0.6%). Countries like Greece and Cyprus have turned the corner on a decade of price drops.
The Global Property Guide found that prices in 41 out of 49 countries rose in the past year. Highlights included such far flung places as the Philippines, Sri Lanka and New Zealand, but also Malta and Germany rising 9% and Portugal nearly 6%, all after inflation. UK prices fell by 1.36%.
The question mark is over momentum. Property investment is a party you want to arrive at just as the band strikes up but leave before the alcohol runs out.
So where are we in that cycle? On average momentum is weakening according to Global Property Guide data. That’s not a reason not to invest, just to be careful about the markets you target.
Low property prices
At Property Guides we’re frequently scratching our heads at why some countries’ homes are so expensive and others so low. Why are Australia and New Zealand so expensive while Canada and much of the USA are so cheap? Why is gorgeous central France and sunny south-east Spain so affordable?
‘Why is gorgeous central France and sunny south-east Spain so affordable?’
Whatever the reasons, all no doubt with a sound basis in supply and demand, there’s a property out there for most investor’s budgets. You can start your international property portfolio for around £20,000. It’s going to be more Old Kent Road than Mayfair, (or more Mediterranean Avenue than Boardwalk, if you’re investing in the US) but at that end of the market the costs are low and it’s easy to diversify your portfolio.
Easier than ever
The problems with investing overseas will be obvious to most DIY investors. How much control can you have over a property a thousand miles away with a different currency, language and legal system?
In the past, certainly, the risk of being ripped off was much higher than in the UK. Even just ten years on from the previous “fly to let” boom, however, the world looks a lot different.
Firstly, there is a network of good, specialist, English-speaking property lawyers in all the popular areas. Secondly, apps like Google Translate mean that language isn’t the barrier it once was.
‘property portals have made every property in the world instantly available to UK investors’
Translatable property portals have made every property in the world instantly available to UK investors. The internet has also brought all that global property data to you too, as well as numerous forums and online investing clubs. You don’t have to do this alone.
Thirdly, renting property out is so much easier via Airbnb and its many imitators. Of course that also means there is much more competition and there may be severe restrictions on rentals that you will need to check out before committing.
Tax and other benefits
A residential property abroad can have all sorts of advantages. If you can legally claim it’s your main residence you’ll benefit from lower taxes in countries such as Portugal, Malta, Mauritius and Bermuda.
Taxation and inheritance rules for expats are complex, so you must consult a tax specialist before making a decision. For example, if you return to the UK within five years of leaving, you may need to pay capital gains tax on any profit from your property investment.
Then there is Brexit. We still have until 31 October (and then perhaps a long transition period) to become legally resident in the EU with all the potential benefits that can bring, for you and your immediate family.
What rules exactly some countries will use to ascertain a right to residence are still unclear, but home ownership will certainly be a positive.
The final benefit is, perhaps the fun of it all. Your own apartment in Paris’s 9th Arrondissement as we approach the 2024 Olympics; who wouldn’t enjoy investing in that?
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