Thursday, March 27, 2008

Spanish boom over?

During the last decade vast swathes of the Spanish coastline have been developed in a construction boom that has made the nation one of the fastest growing economies in Europe. Spanish house prices have risen by more than 200 per cent in that period, encouraging many overseas investors - a large number of them British - to purchase property with the promise of short-term financial rewards.

But in the second quarter of this year the rise in house prices dipped below the rate of inflation for the first time in 10 years.

Analysts believe that because of low interest rates and poor regulations speculators have saturated the market.

Last year more than 800,000 homes were built in Spain, more than in Britain, France and Germany combined.

The result is a long anticipated downturn in the market with the worst hit areas in the big cities and on the Costa Blanca and Costa del Sol, where more than 250,000 homes are British-owned.

At the height of the construction boom in 2005 there were 7,000 estate agents on the Costa Blanca but 300 have closed this year, according to Enrique Llopis, honorary president of Alicante's College of Real Estate Agents. "It is a symptom of the property bubble bursting," he said yesterday.

"Demand is 10 per cent lower than it was a year ago and people are having to sell their property for less than they hoped."

Earlier this year the Organisation for Economic Co-operation and Development said that Spanish house prices were so over inflated that during 2007 the country would see "an abrupt adjustment in which prices will plunge".

The Spanish government said this week that the housing boom was coming to an end, bringing with it a rise in unemployment due to the expected further decline in new construction contracts being awarded.

In a bleak assessment of Spain's prospects, the Socialist government admitted that the country faced an uncertain future. "We face a period of uncertainty and lack of clarity," said Pedro Solbes, the finance minister. "This is always bad for the economy."

Courtesy: Telegraph

Thursday, March 20, 2008

Property in Dubai

Of all the markets which emerged onto the international property scene at the beginning of this century, none has proved more fascinating and more dynamic than that of Dubai . This small emirate at the south-eastern end of the Persian Gulf has been the focus of a construction and real estate boom without parallel in human experience: up from the dust of the desert have arisen some of earth's most spectacular building projects, including as of the end of July the world's tallest building (the unfinished Burj Dubai, soon to become the tallest structure of any kind ever built) along with countless other soaring towers and headline-hogging mega-developments. As Dubai's ruler and the prime mover behind its progress onto the world stage, Sheikh Mohammed, seeks to extend and concretise his vision of his emirate as a global financial, commercial and tourism hum, his domain has attracted many thousands of investors looking to hitch their fortunes to his ascendant star.

It is clear now that the extraordinary capital growth which characterised the early years of the property revolution can no longer be found in Dubai; more so perhaps than any other emerging market to hit the European buying consciousness, the emirate at the beginning of its boom offered the magic combination of affordability and rapid appreciation and those intrepid pioneers who entered the market at around the turn of the Millennium (long before foreign ownership in Dubai was even legalised) have now seen their assets grow, in many cases, up to tenfold. But as the boom took hold and rates of supply, even at the off-plan stage, spiralled upwards - and as the market began to find a modicum of equilibrium - growth began to decelerate from the jaw-droppingly frantic to the merely heady. While estimates vary, many observers put appreciation in the five years from the beginning of 2002 at 200 per cent - that is, prices tripled over that period. Now, while official figures are few and hard to come by, it seems growth has declined to a still-not-to-be-sniffed-at ten per cent annually.

Supply is the big issue here. While an estimated 100,000 people are moving to Dubai every year (a massive increase for an emirate whose total population remains substantially less than that of Birmingham) the rate of housebuilding has been set even higher in anticipation that this rate of increase will continue or even accelerate over the coming years. A study by agents and analysts Colliers International showed that supply in Dubai grew between 2002 and 2005 by 23,000 units, or 47 per cent of existing stock - but that by the end of the decade another 170,000 to 240,000 units will be completed. Clearly, for an increase of this extent to prove viable, population growth simply has to continue at its current precipitous rate or a good many investors will be left holding on, perhaps for several years, to empty and unprofitable properties.

Thus far things seem to be running smoothly. The Dubai economic master plan calls for sustained growth in pretty much every sector and so far that's exactly what we've seen; the establishment of various themed "cities" around Dubai has attracted innumerable large foreign firms with their staff, all of whom require accommodation, while Dubai's generous tax regime (the emirate imposes virtually no personal taxes) has seen many wealthy individuals establish themselves as residents. Furthermore, large-scale foreign acquisitions around the globe (such as the controversial purchase by Dubai Ports World of Britain's P&O and assorted port establishments) have not only helped establish Dubai as an economic player of global import but have necessitated the creation of still more employment in the emirate itself. While it's true that a natural catastrophe or, more likely, a degeneration of the geo-political situation centred on the Middle East could have devastating consequences for all Dubai, such worst-case thinking tends to be poo-pooed by most analysts; barring such extreme events, Dubai's economy looks set for continued growth over the next decade, hopefully ensuring a steady supply of long-term immigrants to support the growth in housing construction.

A good proportion of foreign workers in Dubai, of course, do not own their properties. Rentals in the emirate have been if anything even more dynamic than the property-purchasing sector; rents increased by at least 20 per cent annually each year of this decade until 2006 when Sheikh Mohammed imposed a 15 per cent limit on increases in an attempt to stabilise the increasingly runaway market. Even with prices for properties at their current levels, so much higher than they were pre-boom, letting homes in Dubai is a big and profitable business and it's this sector even more than the purchasing market that requires the expected steady stream of professional immigrants to sustain itself. It's not known what proportion of homes currently under construction are intended for use as rental properties but it is at any rate a very significant proportion, and the great concern over Dubai's market (enough for the Prestige Group to rate Dubai as "watch" rather than "buy" in its initial Global Property Index last year) is that when those 170,000-240,000 extra homes finally reach completion there won't be enough tenants to go round, thus creating a glut of homes for sale by worried investors which could then send the purchasing market itself into the doldrums. While most analysts expect the market to sustain itself through Dubai's economic growth, worries persist and it is now probably this factor, rather than previous issues over legal status, which is the biggest obstacle in the minds of many looking to invest in the emirate.

To a certain extent one area of the rental market could be immune even to a significant downturn in the long-term sector. Dubai's tourist industry is stratospheric at present: over seven million visitors annually with an official target of 15 million by the end of the decade. While the number of hotel rooms in the country is also shooting upwards (the world's largest hotel is planned in a new Las Vegas-style strip boasting nearly 30,000 new rooms) plenty of opportunities remain for short-term rental profits, particularly in tourist-friendly locations such as in and around the massive new Dubailand theme-park complex. With incredible new attractions, a growing number of golf courses, the possibility of the establishment of a Dubai Grand Prix as well as countless other large sporting events (there is even talk of an Olympic bid for 2020 or 2024), new operatic and theatrical facilities and an increasingly exciting fine-dining portfolio, Dubai is becoming a genuinely year-round destination and while short-term rentals will never be as big a sector as longer-term stays it is certainly not a business at which to turn up one's nose.

The bottom line - as it has been, really, since Dubai first poked its head up from the sands - is that there is a bucket-load of money to be made here but it involves placing one's faith in the Dubai project as a whole. If Sheikh Mohammed's grand scheme continues to unfold successfully, as it undeniably has so far, then the economy will continue to flourish and both short- and long-term occupiers will continue to flood into the country. If this is the case then we may see even the current projected housing inventory revealed as insufficient and prices will carry on soaring. If, on the other hand, the wheels come off the project, oversupply will be a crucial and possibly terminal factor. It is hard to imagine that this would be the case - Dubai today is a place where miracles, whether economic or engineering, take place on an almost daily basis - but it remains a real, if minute prospect, and the most cautious of investors will probably wish to wait and see how matters pan out. For everyone else, the boom keeps booming...

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Tuesday, March 18, 2008

Property Abroad

An essential guide to buying a property abroad
Everything you need to know about estate agents, currency exchange, solicitors, mortgages, tax and insurance
Helen Pridham
The professionals involved in helping people to buy holiday homes abroad have plenty of horror stories. But most problems stem from a lack of care on the part of buyers rather than that the property is in a foreign country. People act without thinking, according to John Howell, of John Howell & Co, a firm of solicitors that specialises in international conveyancing. He says: “They seem to leave their brains on the carousel at the airport. They forget all the things they would do if they were buying property in Britain — like taking independent legal advice — and end up signing things they do not understand.” To avoid those potential problems, it is vital to use the right professionals:


There is never a shortage of people willing to sell you overseas property, in this country and abroad. But in most countries, including the UK, there is very little regulation of their activities.

Pauline Gallagher, chief executive of the Federation of Overseas Property Developers, Agents and Consultants (Fopdac), says: “Unfortunately the barriers to entry are very low, so it attracts people who see it is as a way of making easy money because of the large commissions paid by developers. This can lead to misselling at inflated prices.”

Fopdac is self-regulating, but members are vetted and must adhere to a code of conduct which among other stipulations requires them to provide consumers with a choice of independent legal advisers.

Another way of making sure you are dealing with a reputable agent is to contact an organisation such as the National Association of Estate Agents (NAEA), which can provide names of members in the UK who specialise in international property.

They also have a number of overseas members and a link to the International Consortium of Real Estate Agents (ICREA), which also has a code of conduct for its members worldwide.

Fopdac, , 0870 3501223
NAEA, , 01926 496800


There are two main ways of financing an overseas property purchase if you don’t have the cash. One is to remortgage your UK property, the other is to take out a mortgage on the foreign property. Several UK lenders offer overseas mortgages but mainly in the popular markets. Banco Halifax Hispania and Royal Bank of Scotland International, for example, lend on properties in Spain only; Leeds Building Society and Norwich & Peterborough Building Society lend in Gibraltar and Spain; HSBC in France only; while Barclays lends in Spain, Portugal, Italy and France, and Lloyds TSB in Spain, Australia, New Zealand, Canada and the US.

An alternative is to use a UK-based mortgage broker that specialises in international loans. For example, Conti Financial Services can source the money locally for you. It arranges mortgages in a wide variety of countries. Kevin Fleury, senior partner at Conti, argues that taking a mortgage on your overseas property can have practical advantages. “Interest rates on foreign loans can be lower and the lender will want to make sure the property is properly valued and offers adequate security. Most of the problems I have seen are where people have paid cash for their overseas property and not bothered to check things out properly. If you do pay with cash, you should at least try to think like a bank.”

Banco Halifax Hispania, 01422 333868; Barclays, 020-8298 3223; HSBC, 0800 0858887; Leeds BS, 00350 50602; Lloyds TSB, 01624 638119; Norwich & Peterborough BS, 01733 372006; RBS International, 00350 44166;
Conti Financial Services, 01273 772811,; Propertyfinance4less, 020-7594 0555,


If you are planning to buy an overseas property with cash from the UK, you will need to convert your money into the local currency. This can be expensive if you use a high-street bank. Fortunately, there is growing competition from foreign currency specialists. They usually offer a better rate, do not charge fees and provide the option of taking out a “forward contract” so you can fix your exchange rate and not have to worry about currency fluctuations. Mark Bodega, marketing director at HIFX, explains: “We are able to cover our costs and make a profit on the spread between buying and selling currency, and still give consumers a better deal than the banks, because their spreads are so wide.”

Caxton FX, 0845 6582223,; Currencies Direct, 020-7813 0332,; Foreign Currencies Direct, 0800 3285884,; HIFX, 01753 859159,; Moneycorp, 020-7589 3000,; Travelex, 0870 0100095,; Capital IFX,, 0870 777 9777


Getting good legal advice is critical. Buyers can end up with question-marks over ownership or be liable for debts, such as bank loans secured against the property by the developer. You may also need to make a local will. Local lawyers may have better local knowledge, but you will need to be sure it is independent. Kevin Fleury, of Conti, suggests choosing one at least 50 miles from a development to make sure that there are no conflicts of interest. If you use a British solicitor who does international conveyancing there is the advantage of a common language and the benefit of knowing that he or she is covered by professional indemnity insurance. Specialists include John Howell & Co, which has several foreign lawyers, and Goldsmith Williams, which has developed relationships with reputable overseas solicitors in a range of countries . The Law Society can supply names of other solicitors in the UK and abroad.

Law Society, 0870 606 2555;; John Howell & Co, 020-7420 0400,; Goldsmith Williams, 0151 2311292,

The tax implications of a holiday home overseas are often neglected. Bill Blevins, of the chartered accountants and international tax specialists Blevins Franks, says: “People often overlook the fact that when they sell their overseas property it will be liable to capital gains tax in the UK, as it is not their principal private residence. There may also be a similar tax charge to pay to the overseas tax authorities.

Fortunately, the UK has double tax treaties with many countries, which means you won’t have to pay twice but you may have extra to pay if the amount charged overseas is less than in the UK.”

Tax may also be payable on rental income; in countries such as France there may be annual wealth tax to pay on properties above a certain value. Inheritance tax also needs to be considered. Last but not least, says Anita Monteith, tax manager at the Institute of Chartered Accounts in England and Wales (ICAEW): “Prospective homeowners should find out about local taxes equivalent to our council tax.” UK accountants will be able to advise overseas homebuyers, and if they don’t know about a particular country they can access specialists through the ICAEW.

Blevins Franks, 020-7336 1022,; ICAEW, 020-7920 8100,


Taking out insurance locally may be your only option in some countries in Eastern Europe or farther afield; your local bank should be able to help. But problems can occur if a claim arises and if you are dealing with a foreign language. That is one of the reasons you may prefer to deal with an insurer in the UK, where you will also be covered by the Financial Ombudsman Service if something goes wrong.

Most UK-based policies such as Saga Insurance tend to focus on popular areas such as France, Spain, Portugal and Italy. HIFX’s policy, underwritten by Norwich Union, extends to Greece and Cyprus, while Andrew Copeland Insurance’s Europlan includes Malta and Northern European countries such as The Netherlands and Denmark. Wherever you take out insurance, make sure it covers you for the periods when the property is unoccupied. Much of Saga ’s cover does not apply if you leave your property unoccupied for more than 60 days.

Saga, 0800 0150751,; HIFX, 01753 859159,; Andrew Copeland, 020-8656 2544,

Overseas property markets

THE UK housing market may be in the doldrums, but activity in markets abroad is as strong as ever.

Increasing numbers of people are deciding to investing in overseas property, with research from the upcoming Property Investor and Homebuyer Show North suggesting that more than three-quarters of serious investors are planning to buy overseas in the next 12 months. Of these, almost a third believe emerging markets offer the best opportunities.

Stuart Law, managing director of Assetz, a property investment specialist exhibiting at the show, says you can make up to twice as much money on your investment in property abroad compared with the UK.

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"Yields of between six and 10 per cent are possible in overseas markets, compared with around five per cent in the UK," he says. "So it's not surprising that many investors are looking abroad for bargains."

Kevin Axon, a property consultant at Emerging Real Estate Ltd, also exhibiting at the show, says such investments can be relatively low-cost.

"Established overseas markets are still popular but emerging markets can offer good opportunities for investors. Lucrative property portfolios can be started from as little as £30,000 by investing in off-plan developments."


However, before you raid the piggy bank and book a flight to Bulgaria, Turkey, Hungary or Slovakia, would-be investors would be wise to remember the old adage "buyer beware". Buying in emerging markets could prove problematic.

The risks are higher than in the more emerged markets as the economies, infrastructure and legal framework are not as advanced as in western Europe.

Not only that, but property markets in Bulgaria and Turkey could be hit hard by the resounding `No' votes in the recent French and Dutch referendums.

This was clearly a warning that the existing EU members are unhappy with what they perceive as the excessive growth of the Union. As a result, countries not yet in the EU could be left out in the cold, with the gate to membership perhaps beginning to close, with severe potential consequences for their economies and property markets.

Investors should treat property investment in these countries as speculative and be careful not to put all their eggs into one basket.

It may be better to stick to tried and tested markets such as Spain, although once again the advice is to shop around and do your homework.

Mike Hayes, editor of Homes Overseas Magazine, says: "Spain has excellent year-round weather, a superb infrastructure and plenty of sport and leisure activities, including some of Europe's finest golf courses, great food and even better drink.

"Having said that, southern Spain - and the Costa del Sol in particular - is having something of a tough time at the moment. Property prices are high and there are reports of agents overcharging on commission, money laundering scams and `land grab' horror stories.

"However, the famous Costas march on, because, the truth is, nowhere else in Europe can match the year-round sun and fun of Spain or the range of property available - and all just a two-and-a-half-hour budget flight from the UK."


For long-haul destinations, Mike Hayes recommends Florida and Australia. He says: "With the dollar still poor, property in Florida has potential, both for investors and for holiday-home buyers.

"Orlando's rental zone is the centre of attention for Brits, with Disney World, Universal Studios and Discovery Bay for the kids and many places to eat, shops, bars and golf courses for the bigger kids.

"Property rental is a well-oiled machine in Orlando, with everything taken care of, from pool cleaning and lawn mowing to the replacement of cutlery and linen.

Of course it all costs, and you shouldn't expect to clear a large profit from renting there. A combination of a small amount of rental return and a potential for good capital growth, though - plus a strengthening dollar over the next few years, should make for a sound investment."

Mike also recommends Australia for long-haul investors, citing the fact that some 10,000 of us leave the UK each year to live there. Destinations such as Sydney, Melbourne, Perth, Brisbane and Adelaide are all popular and, again, a combination of a weak dollar, fantastic weather, great beaches and the low cost of living is proving attractive.

"Of course, Australia is no weekend getaway destination - buyers will generally be looking to make an investment based on capital gains and rental returns," he says.


Another long-haul contender is South Africa, which is currently witnessing a boom in property prices with increases of 25.5 per cent per annum, according to recent research.

Although geographically beyond other favourite investment hotspots, such as Spain and Cyprus, South Africa offers astute property investors the chance to benefit from a still booming property market.

Whereas property prices in Spain are now comparable with those in England, South African property offers incredibly good value for money.

Chris Wilson, marketing and communications manager of John McDonald Properties (JMP), says early returns can be very good indeed.

"The demand for housing far outstrips supply. The value of properties is expected to increase significantly and, for early investors, growth in the region of 30 per cent can be expected in the first year."

Overall, Nick Clark, managing director of The Homebuyer Show, says the future looks good for investing overseas.

"Many agents will take care of the whole procedure from initial visit to signing the contract. Buying a property overseas has been a distant dream for many people for a long time.

"But the process is becoming a lot easier."

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