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Investing In Property

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Why Invest in Property?

Property as an investment is easy to understand, far easier than the Stock market, where prices move for many reasons. The Property Market is something we are all familiar with, albeit usually in our home country. Buying Property Overseas can seem daunting to some but the principles of investing in property never change:

  • Its an asset that will always be in demand and never go out of fashion
  • Property can be leveraged to achieve huge Returns on investment (ROI)
  • Property can be bought "below market value" by buying off plan and at "pre-release" stage
  • Good things come to those who wait - if you hold property for the long term you will have an appreciating asset that will reward with high returns from capital appreciation and yield

The graph below shows the increase in the average house prices in Spain over the last 3 years by price per m2. This shows that if you invested in a property in Spain 3 years ago you would already have seen a 33% ROI.

House Prices In Spain (Price in € per m2)

Source: Ministerio de Vivivienda

Why Invest in Overseas Property?

Where you invest your hard earned money will be determined by your objectives and strategies, your tolerance to risk and the desirability of your chosen market.

Overseas markets at different stages of the market cycle can deliver better returns than those predicted in the UK. Demand, opportunities and potential for profit are abundant.

The main factors to consider when making your investment are:

  • Affordability
  • Financial Gain
  • Opportunity
  • Economic growth
  • Climate
  • Infrastructure

Property Market Cycles

You can see from the diagram how property markets work. After a recession all markets bottom out. When this happens clued up investors buy in the knowledge that there is only one way out and that is recovery. This is the cyclical nature of the property market and this is where Substitution comes in to play. The UK property Market hit recession in the early 90´s and completely bottomed out in 1995. After a period of recovery and expansion the UK Market saw its Peak in 2004. As the UK market was hitting its peak, knowledgeable investors were looking at new markets which were at a different stage of the property market cycle.

What attracts investors to new markets?

Lets take the "New European 8" (these are the former Soviet satellite countries: Poland, Slovakia, Slovenia, Estonia, Latvia, Hungary, Lithuania, and Czech Republic). Property Investors have been attracted to these new markets because of:

  • European Entry
  • High FDI (Foreign Direct Investment)
  • Legal reforms
  • Liberalisation of financial markets allowing mortgages to non residents
  • €uro currency entry
  • Falling interest rates

In these countries the majority of investors seek city centre investments usually capital cities due to demand and provision of attractive bases for corporations and government departments.

Many investors are now seeking opportunities overseas. This is because of the perception that the world is getting smaller. Advances in the travel sector and introduction of low cost no frills services abroad has meant many potential investors now realize distance is no longer a barrier to sound investment opportunities.

The buy to let phenomenon has been driven by investors recognizing that all property markets are cyclical and that investing into countries that have strong political and economic expansion plans will provide substantial return on investment

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