Sophisticated Property Investors In The Emerging European Markets
The Traditional Favourites
Over the last five to ten years, UK investors buying property abroad have generally stuck to the traditional favourites Spain, France and Italy. With prices a fraction of those in the UK and a guarantee of more sunshine, these markets offered plenty of scope for capital appreciation, rental return and holiday home use. However as prices have steadily risen in these countries, yields have hardened in response and an eventual over-supply particularly in parts of Spain has occurred. In today's environment property investors are looking further East for yield and capital appreciation opportunities.
Emerging Markets
A year ago ten more countries joined the EU, expanding not only the Union, but the hunting ground of the international property investor. Most investors have come to the conclusion that the market cycle here in the UK is at it's peak, and the more sophisticated investor has already started moving his money into the new EU countries. Many astute investors started buying there a year or two before EU accession, particularly in more developed cities like Prague and Budapest where the real estate markets were relatively more mature. So prices in these cities had already increased by up to 25% in the year up to May 2004, however there is still a long way to go especially in the other capitals of this region.
It's Just Economics!
Putting your money into an emerging market surely has to be profitable because by the very definition of 'emerging', you should assume growth, and therefore return. EU accession is a massive catalyst to the growth of an economy as the EU is committed to backing these countries in a bid to creating comparable economies to those of it's current members. Government incentives, new political regimes and tax reforms are creating an ideal climate for foreign direct investment, higher employment and GDP growth, which all directly affect the property market. The relative attractiveness of the older EU capitals from a corporate location point of view is changing according to a DTZ report on the Emerging EU economies. The report concludes that Bratislava, Berlin, Prague and Budapest will be the main beneficiaries in this new economic geography mainly due to their location and catchment areas, the associated low costs especially labour, skills base and the economic growth prospects of these four cities. In less than a year since the 10 countries joined the union this is already evident, particularly in Bratislava as Slovakia wins some of the biggest foreign investment contracts in the region.
Going Forward in 2005
I think most would agree that for long term steady growth complemented by relatively few risks investing in bricks and mortar at home in the UK cannot be beaten for a good solid pension plan. Over the last 10 years the more adventurous have strayed off the beaten path to Spain, Italy and France in search of holiday homes and to diversify their portfolio. There is now however a new and far more exciting playground for us property investors which is sponsored by the European Union, has the most diverse culture in the world, it's experiencing unrivalled GDP growth and it's property market is currently way undervalued. Not only has the UK property market levelled out, it looks to stay that way for the next couple of years and the traditional overseas investment spots seem to have lost momentum and have been overshadowed by something bigger. The pioneers have cleared the stones from the road to Eastern Europe and 2005 is a great time to arrive at the party!
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