The firm expects the UK in particular to perform extremely well, along with Western European destinations such as France and Cyprus. While many investors have taken their money to emerging destinations such as Bulgaria and Croatia in the last couple of years in search of higher capital gains, more established markets such as the UK and France are now providing strong competition at considerably lower risk.
Sticking to home shores…
This year has been one of strong and sustainable housing market growth in the UK. The six major UK house price indices show an average of 8.7 per cent 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 per cent.
Meteoric growth in central London…
London will continue to lead UK growth. In the prime central locations of Belgravia, Knightsbridge and Mayfair, price rises of 100 per cent in real terms are possible over the next decade or less, from January 2006. For many city workers, international business people and jet setters, London is a location where they must own property and the weight of money versus shortage of supply in these quality locations will drive a dramatic price shift. Mortgages are not a concern for most and interest rates will have little effect on this market.
Strong capital growth in Poland…
Economic growth in locations like Poland will underpin the continuation of 20 per cent plus capital gains in some of the newer European members during 2007. The latest Assetz Property Investment Tracker shows Poland has risen from third position to the top of the table, as a result of lenders halving the deposits required to invest in property to just 15 per cent. 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.
Vive la France…
France is perceived as a high quality destination where investors can see themselves living on retirement, with an established infrastructure, culture and lifestyle. Similarly, the Cypriot property market is well positioned to perform well over the next twelve months. 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. In addition both destinations are now offering strong returns, with Assetz predicting 8 per cent growth in France next year and 10 per cent in Cyprus, as well as strong tourism markets and low-risk investment.
Holiday home buyers will return to Spain…
Capital growth in Spain has fallen from 12 per cent earlier in the year to 10.8 per cent currently and is likely to continue slowing into 2007, after which it will probably stabilise. British holiday home buyers will continue to support the market, which is also underpinned by strong demand from Spanish locals for their own holiday homes, as well high levels of tourism.
Turkey will emerge as a hotspot…
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 per cent loan-to-value (LTV). Mortgage rates are quite high at 5.9 per cent, but with capital growth strong at 20 per cent and a surge in demand for property by local people pushing up prices, Turkey is making an impression on international holiday home investors.
A nation of renters starts to buy in Germany…
The burgeoning change in the psyche of the German population from lifelong rental into property ownership presents considerable opportunity for investors. Growth is starting in cities such as Berlin, where, incredibly, just 13 per cent of the population own their own homes compared to 43 per cent in Germany as a whole, 66 per cent in the UK or 85 per cent in Spain. 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.
Bulgarian growth takes a breather…
Capital growth in Bulgaria is likely to continue taking a ‘breather’ in 2007 after fairly reductions in the rate of growth for 2006 compared to the prior year. Capital growth dropped from 36 per cent in 2005 to 13.9 per cent for the year to the end of September 2006, and is likely to level out at about 10 per cent per annum for time being. Large deposit requirements with Bulgarian mortgages (minimum of 35 per cent 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.
USA could present a major opportunity…
The continuing slide of the U.S. dollar means better buying opportunities will arise over the next year in the States. Those hoping to invest in the States next year should hold off until the market stabilises and offers the best opportunity to investors. It is not yet clear how severe the downturn in the economy and currency will be, but once the market has bottomed there are likely to be excellent opportunities for investors. International tourism will also soar as the currency rises above $2 to the pound, providing great demand for rentals.
South Africa…
Growth in South Africa has slowed from 24.6 per cent to 12.3 per cent and is likely to continue falling next year. Mortgage rates, already high at 9 per cent are possibly still rising. Yields have slipped from 10 per cent to as low as 5 per cent in 2006, so rental income will fail to make a profit for many investors. Prices however are still low, even for prestigious properties. Good-sized detached properties with pools can be bought for around £160,000 in prime Johannesburg suburbs with many other properties at just £60,000 or so.
Stuart Law, managing director of Assetz, commented: “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.”
