The Daily Telegraph, 22 February 2007
Jenny Knight
A second home or a hard-headed decision to invest? Londoners lead the way with foreign investments.
LONDONERS are setting the pace with investments overseas, whether for second homes or out-and-out investments or a bit of both. However loud the siren calls of the Middle East and the new Eastern European markets it's that old favourite, Spain that remains the top destination for British second homes buyers.
Each year 50,000 opt for the romance of it all and take the plunge even though in many places prices are stagnant and there is an oversupply of property. The figures make UK buyers look like naive investors but the truth is that only a tiny minority of buyers are solely interested in making money. The rest have mixed motives. They quite fancy a holiday home or think Spain would be a nice retirement base and meanwhile they hope to make some cash letting their property to holiday makers. These are the people who have sent Spain, France, Portugal and Italy to the top of the second home destinations, while the real profit is being made elsewhere.
Genuine investors, who buy only because they think prices are going to soar, are gambling their bonuses on Eastern European cities hoping for a surge in prosperity. These people who invested in Riga five years ago trebled their investment.
Now they are looking further afield to places like the Ukraine or to cities where prices have not taken off or which may have further to go, like Prague, Bratislava or Moscow. A third class of 'investors' buy because a place is cheap. Many picked Bulgaria. Some will do well and others not, depending on how easily they sell their flat against competition from newly-built blocks, and how much rental income they make they make. The attraction of cities for investors is that they don't have to rely on holiday lets. But even those skillful Riga investors now face a dilemma. According to Liam Bailey from Knight Frank, the newest flats are of much higher quality than those built five years ago. So far there is no over supply, but at some stage early investors will be selling and looking for new prospects. The standard tip for investors is to avoid the places where most people are buying. For example, German prices have done little for years, so people are starting to wonder whether the time is now right to invest there. Another tip is to look not just at location but at what you buy.
Liam Bailey added: "With new flats the spec rises all the time, so many investors are putting their money into turn-of-the century buildings in Eastern European cities, which are being renovated to a high standard. These buildings are handsome and aren't being made any more."
Inside Track Group says that about 2.2 million UK nationals own property abroad and that buyers select their favourite holiday destinations of Spain, France, Greece, USA and Italy, rather than picking areas where the property market is in its infancy. These buyers are not likely to make a fortune – they are too sentimental sell when prices peak - but at least they end up with a place they enjoy as well as a rental asset Investment targets can suffer huge reversals of fortune. The
last Knight Frank global price report showed that Hong Kong, which had a 20 per cent price growth in 2005, suffered negative growth last year. Contact insidetrack.co.uk, knightfrank.com