“Capital cities are the rising stars of luxury residential real estate, offering promising investment prospects for those investing in overseas property in 2014”, predicts Laura Henderson, editor of essential guide to luxury resort property, Abode2.com. “We’re currently seeing a shift in interest to more established markets that have shown long-term results, and capital cities such as New York, Miami and Paris are benefiting from this flight to quality, with an increase in buyer interest in the summer of 2013[i].”
Continues Laura, ‘A decade ago property investors were flocking to developing markets such as Eastern Europe that offered high returns for relatively low capital outlays; but since 2008 money has been moving out of those areas due to a lack of transparency, over-supply and title issues. In contrast, a city pad can not only be a savvy lifestyle buy, but investors can instantly reference it against current market conditions in terms of the property’s value and rental rates’.
Brand new Abode2 is the first and only UK magazine to focus on the finest resort homes and developments across the globe for investment, lifestyle, rental and retirement purposes. Packed with practical information and analysis of the latest property market news and trends, it includes honest location appraisals, detailed resort case studies and ‘how to’ buyer advice, making it a must-read for anyone serious about investing in a resort-home abroad.
2014 Capital Hotspots
Toronto
Canada’s largest city and the capital of Ontario State, Toronto is home to 2.5m+; yet its intimate, tree-filled neighbourhoods make it feel more like a string of community centric villages, complete with cutting edge buildings by global designers, and a revamped lakeshore area downtown. Toronto has out-performed nearly every Canadian city, and most American cities, in terms of real estate liquidity, thanks to controlled supply and growing demand. Property in a prime Toronto district is half the price of similar property in downtown Manhattan, yet values have increased here by 5%+ in the past year.[ii]
Berlin
Increasing volumes of Berlin’s housing stock are now in developer hands, with a government backed building boom enticing foreign buyers to invest in a stake.
Most interest to date has come from expats or those after corporate lets, but increasing numbers of foreigners are purchasing for their own private use. The most sought-after properties tend to be refurbished period residences, while flats in prime residential sub-districts, like Wilmersdorf and Dahlem, can be snapped up for £200,000.’
Buenos Aires
A city charged with history and Beaux-Arts architecture, Buenos Aires is a difficult place to typecast; each district offers a different shape, demographic and character. New money is flowing into old barrios such as Monserrat, San Telmo and Sur, which offer designer boutiques, health-food stores and Internet cafes, so no wonder new-build values are tipped to rise by 15% by 2015 and house values have more than doubled since 2002[iii]. Yet prices here are still only around one-tenth of those in mainland Europe. Argentina’s mortgage market is still in its infancy, so most foreigners prefer to fund their investment via domestic loans or equity release.
Abode2 Top Tips for Buying Abroad:
1. Give Your Dream Region The Twice Over Visit a region at least twice, in the high season and during the off-peak months, to get a feel for attractions to keep you coming back for more. Get an ‘insider view’ from UK property owners in the region – or research back home through rental websites such as www.homeaway.co.uk.
2. Remove The Rose Tinted Glasses In reality, few properties are flexible enough to sustain your long-term needs and interests. The lakeside retreat that’s perfect for a childless couple may prove too hazardous for a toddler, while teenagers may love a lively beach resort, but you may find it too crowded in retirement. Before you commit, think about the alternatives, as sometimes renting is more rewarding than buying.
3. Old Or New – Decide What Works For You An older house for the long term is attractive due to scarcity value and character, but can be a drain on resources, so you might be better off culling your period fantasy and settling for a younger, lower-maintenance model. New builds have advantages such as quality construction, energy efficiency, and contemporary styling, but bear in mind the higher price per square foot than the equivalent resale home of similar size.
4. Check The Price Is Right Has the property been quoted in ‘local’ or ‘foreign’ pricing? Many countries maintain a ‘two-tier’ system and for good reason. With new build property UK agents can earn hefty commissions for marketing overseas projects, with those fees recouped in price mark ups. But you won’t know about it until you start speaking to trusted local agents, visiting properties and seeing what else is on offer. A further ‘hidden’ profit margin unlikely to be flagged up in the sales pitch, is resort fees. Often listed as administration or transaction costs, this charge can be over and above the annual maintenance fees set by the resort for your property. If the figure seems artificially high compared to other developments – challenge the developer.
5. Get Clued Up On Currencies. Avoid playing currency roulette by either tapping into existing savings or taking out a second mortgage on your UK property, but bear in mind currency conversion costs for deposits. Those changing pounds to foreign currency have two main options: a high street bank, or specialist brokers such as www.halofinancial.com or www.caxtonfx.com. Brokers invariably offer a better deal: more competitive rates, lower (if any) transfer fees and no commission charges.
6. Make Your Bolthole Pay Its Way If you’re only spending a few weeks a year at your property, it makes sense to get some rental mileage out of it, to help pay towards its upkeep. Second home rental income is subject to UK income tax based on your marginal rate. You can, however, claim for certain expenses such as repairs, utility bills, insurance and letting admin fees and if you have a second home mortgage, you can also claim relief against the interest paid on the loan.
7. Take Guaranteed Returns With A Pinch Of Salt To woo buyers, developers often offer guaranteed rental returns (GRR) of say 5-7% per annum for a three-year period. Some developers finance this GRR offer by striking deals with tour operators to block book a quota of apartments for the season. Others will simply add a sneaky 5% to the asking price and return the money to the buyer in the form of ‘guaranteed’ rent. Even if their flat lies empty for that year, it won’t have cost the developer a penny.
8. After The Honeymoon Period – Longer-term Rental Strategies Think ahead to when any ‘guaranteed period’ ends, particularly if buying in an up-and-coming area where competition may be stiff. If regular rental income is a priority, consider merging with a hotel brand as they’ll work hard to bring the clients in. The contract may however impose restrictions on your own use of the property in peak seasons.
9. Plan Your Exit Strategy Savvy investors always plan their escape route when buying a holiday home. Make sure what you buy has a unique advantage over the competition, such as a fabulous view, or beachfront access. Research historical price trends but also look to an area’s future too, before committing to any purchase. Think of it as working in reverse – then you can enjoy the journey.
10. Get a feel for how buoyant your resale market is
Count the number of distinct buyer groups. If you’ve three or more, including local, national, and overseas, you’ve got a healthy base to work from. As long as you aren’t overly reliant on one single investment stream, you won’t be left exposed if it dries up.
SOURCES
[i] MIAMI AND NEW YORK STATE ASSOCIATIONS OF REALTORS – FNAIM (FEDERATION NATIONAL DE L’IMMOBILIER)
[ii] TORONTO REAL ESTATE BOARD
[iii] REPORTE INMOBILIARIO–DIARIO BAE