The good news for 2013 is that there’s a great deal more sanity in the property investment market these days. Gone is the hype filled huff and puff about every other nation representing an excellent opportunity for investors, (Albania? Seriously?), and required caution has returned to all things real estate.
The bad news is that one serious flaw that’s affecting many otherwise genuinely appealing property investment destinations is failing to receive the headline warnings really required to protect potential buyers.
You see, there are reasons to invest in carefully selected properties abroad in 2013…but even more caution is required, because whilst prices may look low in some of the evergreen hotspots - luring would-be buyers in - rental yields are really suffering in so many tourist destinations around the world. This means that any so-called ‘safe’ investment requires very close inspection to ensure it’s not actually going to cost you an awful lot more than you think.
What’s more, even in nations where it was possible for British expats and foreign buyers to get mortgages to buy property, gone are the days of easy credit anywhere. Take Dubai as a prime example – the Central Bank in the UAE has directed banks to cap mortgages for expats to 50% on first properties.
You might think this is just another typical Dubai kneejerk reaction and dismiss it accordingly, but think about it – this decision is going to seriously undermine the profitability of this otherwise relatively appealing property destination.
Whilst rental yields in Dubai remain relatively strong, the market is about to be hit with a dearth of unsold homes because if you can’t get a mortgage to buy, homes won’t sell!
In other ‘hot’ destinations from the Caribbean to the Mediterranean, tourism based rental yields are flagging. Demand for holiday properties to rent has dropped; at the same time more properties are being offered for rental as second homeowners attempt to make money from their unsellable assets.
All this means that where once you could enjoy modest yields, now you could struggle to earn enough from a property to make it worth your while buying it. Yes, in some markets prices are so far from their pre 2007 peaks that there appears to be profit in purchasing and waiting for some sort of positive correction – but unless you’re happy to have an empty home earning you nothing or very little in the way of an income, you might need to rethink your approach to investing in overseas real estate.
In other words, don’t bank on tourism rental demand to make your property investment profitable.