Mention buy-to-let and it is hard to stifle a yawn. Stale debates rumble on about rents in Notting Hill, a favourite location for well-heeled would-be amateur landlords, lulled by letting agents omitting to mention that capital values and yields have both dropped in recent months. And what of new hotspot Widnes? Too late… agents say most cheap terraced houses have been snapped up, so it is already cooling down.
The serious money is now looking to the East – eastern Europe that is, and perhaps China too. The mainstream and specialist property press alike have been besieged by advertisements and editorial saying Prague is the new Leeds for investors.
There have been three spurs to this trend:
● EU expansion in May took in Estonia, Latvia, Lithuania, Slovenia, Slovakia, Hungary, Poland and the Czech Republic, all proclaiming optimistic economic assessments of future expansion and consequent upward pressure on residential property values.
● Many UK sales and letting agents have recently had more dealings with east European buyers in the UK – one in 15 buyers of London properties worth over £2m is from Russia, claims Knight Frank – and many have accepted reciprocal invitations to visit the region.
● Most importantly, buy-to-let in large UK cities is regarded by many business analysts as a poor investment today (Hamptons International says falling yields in London may make it almost impossible for potential landlords to get 85% investment mortgages now).
FPDSavills head of residential research Richard Donnell has investigated the Polish market and says east European cities are ripe for their money.
“The story is the same in Warsaw, Prague, Budapest and so on. They’re joining the European Union, businesses are beginning to relocate there, with a lot more on the way, and the quality and quantity of property will rise,” he says.
London investment firm Letterstone has purchased apartment blocks in Prague, all of which have been sold off-plan to UK investors looking for the next big opportunity. Dutch financier-developer ING has built luxury apartments in the Holland Park area of Warsaw since 1999, as well as houses in Prague and Budapest, all aimed at western buyers.
This month, FPDSavills announced an alliance with Croatiansun, a Dubrovnik-based property consultancy employing 15 staff and headed by Britons Paul Keppler and Christopher Saunders. It will sell individual land plots as well as properties, mainly to second home buyers, but also to those seeking long-term letting investment.
Next month Avatar International – which has been selling property in Croatia and Bulgaria for some time – will begin marketing off-plan apartments in Budapest, targeting serious small-scale investors.
Aside from serving as marketing vehicles, all these firms thrive by helping investors through the maze of East European red-tape that still exists.
For example, a buy-to-let investor in the Czech Republic must spend £1,400 setting up a limited company and will have to get a repayment mortgage, because interest-only ones are not allowed.
He’ll also have to haggle with potential occupiers, in a culture where tenants traditionally bargain over rents, irrespective of the market, and must then pay a range of local taxes on resale.
In Croatia, an overseas buyer must seek permission from the foreign and justice ministries, and this procedure can take up to a year. To avoid some purchase costs and to minimise taxes when you come to sell, it is best to set up a company for another bureaucratic hurdle.
Even Knight Frank, in its promotional material encouraging investors to buy in Moscow, admits that “Russian bureaucracy might get in the way” and “there can be confusion over title deeds to older properties” .
Simon Hill of Letterstone says: “Even experienced investors in Britain need help to get through complicated procedures in eastern Europe. There are few objective assessments of capital appreciation or yield, so you must speak to people on the ground. Investors need to use investment firms with knowledge of the market and process.”
Advertising company director Alistair Reynette-James is typical of the individual investor looking to the East. He owns seven London apartments, but his latest acquisition has been an off-plan flat for £60,000 in central Prague.
“It’s probably going to be one of my safest investments. You buy a flat in Chelsea for £300,000, find the market has dived overnight and it’s worth £250,000. In Prague, the property costs are much lower so the risks are substantially less,” he says.
“Prices have risen from 10% to 15% in Prague each year until 2000. If they do the same between now and when the development is finished, the option’s open for me to sell my apartment without having rented it out and still make a big profit.”
That is fighting talk from a typical buy-to-let investor, but you cannot hear it in the UK any more.
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Unlike much of eastern Europe, Shanghai has a sophisticated residential market with price indices and long-term involvement of Western property agents. While China’s property market rose 5.1% in 2003, Shanghai rose by over 27%. The city now has 20m residents, many in 11 satellite towns built around the city periphery. GDP per head exceeds US$5,000, the highest in China. B&Q, Starbucks, Warner Brothers and Ikea opened stores there in 2003 — classic signs of increasing personal prosperity. In September, the first Chinese F1 Grand Prix will be held on the Shanghai track. London-based mortgage broker City Trading Post is now offering to locate, fund and arrange agents to manage buy-to-let properties in Shanghai for UK buyers. There is no minimum investment, but a 30% deposit is required. Prices start at £60,000 for a one-bedroom apartment and average rental yields are 8% to 10%, according to CTP. |
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New EU members |
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Czech Republic (mainly Prague): rental yields sharpening, potential for moderate-to-strong capital growth over medium term |
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Estonia (mainly Tallinn): the centre has seen large capital rises since 2002, investors now looking to suburban areas |
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Hungary (Budapest): an early location for western investors so significant price rises already seen |
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Latvia (Riga): lack of supply has sent top-end prices soaring; some conversion of commercial to residential |
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Lithuania (Vilnius): limited investment potential until economy grows further |
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Poland: unemployment declining slowly; potential for sharp exchange rate fluctuations; some investor interest outside of Warsaw |
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Slovakia (Bratislava): rental yields high compared to much of Eastern Europe; new build shortage; commuting distance to Vienna |
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Slovenia (Ljubljana): very low level of interest from UK investors, but a strong national economy |
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Elsewhere in Eastern Europe |
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Bulgaria: overseas purchasers concentrating on burgeoning second home market at Black Sea resorts |
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Croatia: strong investment from non-UK western Europeans in Dubrovnik and Hvar Island |
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Romania: Bucharest could follow Prague’s example |
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Source: Letterstone |
