Earlier this week Shelter Offshore was asked to give our opinion on the most and least expensive property markets globally, and what we believed a buyer could get for a relatively modest budget in some of the world’s economic hotspots today, (London, Tokyo, New York etc…), we declined to comment! Then we were asked to comment on an article in the Daily Mail that points to where in the world buyers can bag the cheapest distressed properties currently…
It seems that the British obsession with real estate cannot even be dampened by all the negative economic data we’re constantly being inundated with these days. However, we’ve chosen not to comment publically about property opportunities, because at the moment we feel that only the savviest and wealthiest investors (i.e., those who could survive a dodgy punt on a poorly performing property economy!) would be wise to act.
Yes you can find bargain properties abroad – in abundance in some markets as we discuss below. But there are many pitfalls the unwary buyer needs to be acutely aware of before they commit still serious amounts of money to what is a very illiquid asset. The only difference is if the buyer in question is purchasing a home to live in…but even then there are traps and hurdles to be aware of.
Where in the World are the Property Pickings Rich?
Whilst Britain has artfully managed to artificially prop up its property economy so far, it will crash eventually - have you seen the discrepancy between earnings, affordability and average home prices in the UK? Unsustainable I’m sure you’ll agree. Therefore anyone with an abundance of British real estate in their investment portfolio may be well advised to ditch their stock before the great plummet. (That doesn’t mean you need to sell the family home and stash the equity in a savings account!) However, markets around the world have already fallen to deep depths, and some are saying that now is a great time to plunder.
You have the likes of Ireland where prices are still in decline, and where developers of new homes will bend over backwards to enter into a deal with a buyer, any buyer. You have the likes of Cyprus where many are in denial still, but where those who want or need to sell are increasingly being forced to slash their asking prices. And of course you have the likes of Spain or Greece where there is no market to speak of, because no one has any money or any appetite to buy.
The Daily Mail also cites the US where the subprime effect has flooded the market with ‘cheap’ homes, and Portugal, Bulgaria and Hungary as excellent markets to shop for a bargain basement property.
There is certainly an abundance of real estate for sale in these nations, but…
The Trouble with These Bargain Basement Property Markets
In each of the nations mentioned above you have deeply ingrained economic issues that will critically affect the entire housing market locally for many years to come – in some markets experts predict up to 20 years of stagnation! What this basically means is that if you buy in now looking for growth, you may well be looking and waiting for many, many years.
You can add to this a global lack of financing availability – and heck, it’s not just ‘ordinary people’ like us who can’t get loans and mortgages, it’s entire nations which are struggling to find money to borrow just to keep going!
So, you have markets where prices may fall still further, where they are expected to stagnate for years, and where no one wants to lend to help you buy. What else? Well, you have no resale opportunities – and anyone who buys a property as an investment should know that working out their exit strategy is as critical a part of the purchase research process as ensuring that the building they want to buy is mortgage and lien free.
Other pitfalls you can face include massive oversupply of sale stock, lack of any affordability or finance for anyone who could potentially be interested in buying your newly acquired investment asset, and even the fact that the economies cited above are in or on the brink of recession. This can impact on rental returns you might otherwise be thinking you could enjoy.
If you’re looking to buy to let to the holiday market (in Cyprus, Florida or Greece perhaps?) are you aware that your target audience cannot currently afford to go on holiday as often as they would like? And/or cannot necessarily afford to stay in private rental homes? When economies enter recession and disposable incomes shrink, affording a holiday abroad doesn’t come top of many peoples’ lists.
The odds are therefore stacked against you making a profit from capital gains or rental income from a bargain basement property abroad…
Of course, there are opportunities out there…probably…but as mentioned earlier, you need to have deep enough pockets to take a hit because there really are no guarantees, and the risks are very, very highly stacked against the opportunity for positive returns.
What About Buying Property Abroad to Live in?
As we mentioned above, when it comes to buying a home abroad to live in, some things change. For example, most people buying a home shouldn’t be considering how much money they’ll make from their purchase. Although the British mindset is, unfortunately, to see your home as an asset – but this way of thinking needs to alter if you’re looking for a home overseas…particularly in a recession impacted market.
Property markets the world over vary in terms of their liquidity – and in the markets mentioned above you have many issues stacked against you making a fast buck from real estate. So, as long as you’re buying a home abroad to live in for the long-term, and you don’t expect to have to resell it quickly for more than you paid for it any time soon, you may well be able to find a dream bargain.
However, just because a home seems to be a bargain that doesn’t mean you should necessarily buy it! You need to be sure of your reasons for purchasing…if it’s just because you’re quite keen on a country and you can see that property there is currently affordable, that’s not a good enough reason to commit.
You need to have been living in the nation for at least 6 months – if not a year – before you’re sure you want to buy. Then you need to be comfortable with the property market, the buying process, the taxation you pay at point of purchase and resale, and you need to be sure you’re buying in the right town or community. I.e., that’s only something you can decide after you’ve spent time getting to know the town or community!
Don’t rush, don’t be seduced at the thought of bagging a bargain, and apply the same common sense approach and method to choosing a home as you would in any market and under any market conditions. Then factor in the truth that you may not be able to resell the property you purchase, and certainly not at a profit – and if you’re still comfortable buying then go ahead with a lawyer’s help.
Finally, if you’re unsure of even the slightest element of the deal, rent don’t buy! No one needs to worry that any of the above mentioned markets are going to boom any time soon after all!