Should I Invest in Property Abroad Instead of a Pension?

So much media attention has been given to the fact that there is a looming pension crisis about to impact us, to the fact that pension plans consistently fail to deliver expected returns for many people and also to the fact that buying investment properties abroad can generate us an income and create a nice tidy lump-sum-type-nest-egg in the future.

And so seemingly a greater number of us are considering these factors together and asking ourselves the inevitable ensuing question – ‘should I invest in property abroad instead of a pension?’ According to recent research from self-catering-breaks.com, almost half of those surveyed who had already bought a second home abroad had bought it at least in part as an investment towards their retirement.  In this article we examine whether foreign property is actually a good investment asset for a retirement plan.

Diversification is the key to successful investment – that is a fact that few can deny.  Therefore using bricks and mortar to supplement or compliment more traditional pension planning methods can be an excellent way to create diversification…however, as with any investment made there is always an element of risk associated with investing in real estate, and in some ways this element of risk is heightened when buying abroad.

In theory using property as an investment asset within an overall retirement plan is a good idea….however, anyone choosing this method of approach needs to do sufficient research into the market they are buying into to determine whether they are about to pay the right price for a property, whether rental or resale demand is strong and sustainable, and what’s more, those using property as an investment approach for retirement income should take a long term view and not throw their life savings into a home abroad at the last minute.

So – if you’re going to be buying abroad, where should you be buying?

A great deal of information about property in emerging markets is now widely available on the internet, on the television and in print media which is why people are becoming more adventurous in the destinations that they choose for their property investment purchase.  On the one hand this is great news – if these countries weren’t being so strongly promoted their delights would be hidden from the wider world.  But on the other hand, just because a country is cheap doesn’t mean buying a property there will make a good investment approach! 

Far more due diligence should be done than is done by almost all purchasers into the fundamentals driving the property market.  In simple and direct terms, one needs to understand factors that will affect whether a property remains in demand as a rental commodity (e.g., does this emerging market actually have a long term future as a tourism destination) and whether there will likely be demand and sufficient affordability in the market for a property when it comes time to sell.

Good long term property investment destinations are aplenty from Bahrain to Vietnam – but people just need to be aware that we are potentially on the verge of an international real estate market slow down which will largely be driven by affordability factors affecting the main international buyers such as the British and Americans.  A global price crash is unlikely as bust does not always follow boom despite what many people think and each individual real estate market in the world has very different economic fundamentals…but when we’re talking about second home countries, these nations are directly impacted as and when the likes of Brits and Americans cannot resell their homes, cannot afford second mortgages or cannot afford to release their accrued equity.  By keeping this in mind most people will resist the urge to steam ahead and make a rash buying decision on the back of unsubstantiated estate agent and property developer claims that a given market is about to boom or even sell out of affordable property stock.

Some experts and economists are saying that Central and Eastern European economies are on the verge of an Asian Crisis type crash possibly led by Latvia, and so anyone looking at these markets needs to carefully examine what’s driving the real estate market and whether price gains are likely and whether demand and affordability will remain.

Let’s take three popular countries and examine whether they are good countries to invest into…

Property in Spain

Because Spain is so easily and cheaply accessible, because it is well known and well loved by Brits and because it has excellent fundamentals from a stable economy to a fantastic climate it does represent a good, solid, evergreen market. 

The problem with Spain is that it has had its property market boom and prices in the most popular locations are already high.  For those who are thinking of retiring later to live in a home they buy in Spain this is not such a great concern as they will be buying a home as well as an investment, and if they buy well located property they will generate a rental income from it…it’s just that both the high availability of holiday rental property in Spain and the fact that prices are so high can and does have a negative impact on rental yields achievable and that’s why some people don’t think Spain is viable for them.

Property in Bulgaria

Buying a property in Bulgaria as an investment commodity towards an overall retirement plan is not a particularly good idea anymore.  The majority of those buying real estate are buying in over-saturated locations on the coast or in the mountains and because of oversupply it will be difficult to generate a decent and consistent rental income or even resell for profit when the time comes.

Property in Turkey

Turkey is a slightly better market – it certainly has more going for it in terms of potential for growth in terms of prices and demand for rental accommodation – but it’s a market to approach cautiously.  Build quality is a very serious issue that needs to be considered, as is the location of a property so that a buyer can ensure the long term attraction of that property remains otherwise rental incomes could dwindle and resale potential could falter.

In Conclusion: the answer to the questions posed, namely ‘should I invest in property abroad instead of a pension?’ is a very personal one…but the general issues that should be considered before a decision is made include the fact that one approach is not always the best approach, diversification is better, levels of risk and your risk tolerance should be considered and a great deal of personal research into any investment option should be undertaken before a commitment is made.

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