Now the work is done, I thought I’d spend a bit of time sitting in the garden, on the new decking, chilling with a refreshing Pinot Grigio. And we all know what happens next – the sun disappeared.
This so familiar act of God is the one thing that is always guaranteed to get me thinking of better climes. We all do it. It’s that 'if only the weather were better in the UK' factor that gets so many of us dreaming of sun-kissed olive-grove gardens, with decking-clad infinity pools and, yes, guaranteed sunshine.
This longing for far-flung corners of the planet is one of the side-effects of living in the UK. It has created an estimated 1 million plus UK residents who own a property overseas. The vast bulk of these people have made what is known as a lifestyle property purchase.
Their primary reason for the purchase they made was that they want to personally use the property, either occasionally, or a lot.
This is where I find myself drifting away from the pack. Because I am a property investor, while I love the idea of owning property overseas, I would avoid anything that I consider lifestyle.
This is because the motives that drive such a purchase are not conducive to generating high returns. Basically, if you let your emotions run away with you, you will be relying on luck alone to deliver any financial returns. I would much rather carry out some research, based on the investment potential of my bolt-hole, and then only buy if the numbers stack up.
"What sort of research is that?" I hear you ask.
The starting point with any investment overseas, be it property or otherwise, is political stability. I would never buy in any country where there is a track record of unrest. Even if you think things have turned a corner or now settled down, the risk is too great.
For a start, you will find it very difficult to sell up later if the political instability is still evident. Worse than that, you might even find your property suddenly taken from you (think farms in Zimbabwe).
Purchases in Egypt – a formerly popular non-EU destination to buy property – would be a no-no right now. Having said that, there are some who say that this would be the time to buy in a country such as Egypt. My view is that the world is big enough to be able to avoid such countries.
Please note that by political stability I do not mean a western-style democracy. For example, I consider China very stable politically. Fifty-plus years of unchanging leadership is as stable as it gets (well, almost).
Assuming you are happy with the political climate during your search, then the next factor to focus on is the economic stability. This might seem an obvious one, but actually it can be a bit misleading. Economic stability is not so much constant growth, year-on-year, as that is virtually impossible. However, what it means is that the drivers for economic growth remain constant.
These are such factors as "mobile and trained workforce", "plentiful natural resources", "low levels of corruption", "established and functioning banking/lending system" and suchlike. Even quite volatile economies can be deemed stable if these sorts of factors remain.
In practice, you will need to carry out a decent amount of research into some countries to work out if they truly pass the stability test, economically. Get it wrong and you might miss an opportunity, or, worse than that, find yourself the not-so-proud owner of a house in a part of the world you wish you’d never heard of.
Let us assume you have a shortlist of countries that pass the first two tests. Then what? Well, my personal view is that you should now start to focus on the exit. If you do make a major investment into a foreign market, then the only way you will ever benefit from that is if a) there is a market for renting the property and b) a market to sell it into when you are ready to exit.
So, my recommendation is to carry out some research on who is likely to want to use your target property. For example, the Caribbean has been a remarkably successful place to invest (well, not all the islands – see earlier factors), because of one reason – proximity to the largest and wealthiest market in the world, the USA. Some countries have tried to copy the typical approach of Caribbean islands: that of building suitable property within a stone’s throw of the best beaches, but without much success in some cases.
Notably, Spain, has basically over-developed to the point that a crash, due to last many more years, was always on the cards.
This brings me to the difficult bit. It is relatively simple to identify political and economically stable countries. It is, however, not so easy to identify localised markets that have strong levels of demand for the property you are about to buy.
Say, for example, you were thinking of buying a property in Spain or Florida in 2006. On paper, the first two tests were passed easily. It was several decades since Spain had a revolution and even longer for the USA and both had factors to suggest economic stability (and, to be fair, both still do).
However, there was one factor that lay obscured from view, and that was the over-capacity of new-build property coming on to the market. Inevitably, supply vastly outstripped demand and both these markets suffered serious setbacks. These are setbacks that they will take many, many more years from which to fully recover.
Quite simply, anyone who bought in 2006 in either of these markets will not see a return on their investment until such time as the spare capacity in the region has been soaked up. In parts of Spain, it is difficult to see how this will occur, ever.
My advice here is to not follow the crowds. The more advertisements spouting the same sort of property purchase there are, the more you should be on your guard.
Rather than, say, invest in a two-bed flat overlooking the water in Spain, why not try to think a bit laterally? For example, I would consider investing in somewhere that has a workforce needing somewhere to live, rather than relying on holidaymakers.
I do, however, recognise that such places with high workforce-to-property ratios are likely to not be the same as somewhere you and I would want to go on holiday to.
For example, think of Calgary in Canada in the 1990/2000s for a fast-growing economy (gas and oil industries) with the need for more housing. This exciting property investor’s city might not be the first place you would think of investing in, even in Canada, let alone globally. Dreams of that place in the sun would have obscured this opportunity.
My point is this: if you are going to invest in property overseas, do not do it for lifestyle reasons. It would be better, in my humble opinion, to buy a truly rentable property in, say, Johannesburg, than a lovely seaside pad in a holiday destination such as the Costa del Sol. If you buy well, you can always treat yourself to several holidays on the profits.
By way of example, here’s a couple from my own experiences which may help you finding where to look.
A good one
I bought some low-cost housing in Berlin, Germany in 2007/8 before the credit crunch, because I knew prices there would hold up due to very high demand – 89 per cent of the population of Berlin rent their housing. Also I knew the German economy was then on a contra cycle to the rest of Europe and hence would not slump like the rest of the eurozone if the credit bubble did burst.
The reasons
- Strong exports (all high value)
- A skilled workforce plus a large input of cheaper workforce from the former East Germany.
- Excellent lower rating of currency as the strongest member of the euro – German exports were cheaper because of their membership of the euro and likely to remain 30 to 40 per cent cheaper than if still using the Deutschemark.
Bulgaria. In any purchase there is a risk of being 'the last one holding the baby'. Money is only made on Bulgarian property on the principle of finding a bigger fool.
The reasons
- Huge corruption issues
- No real economy to speak of (what does Bulgaria make/do?)
- Untrained and demographically out of kilter workforce – all the youngsters have gone abroad
