Rising taxes, an uncertain economy, limited finance – sounds depressing, but for some of us there's never been a better time to buy abroad. So says financial broadcaster James Max, who explains how today's conditions have made it a buyer's market for many...
Buying abroad arguably has become both more of a luxury and riskier, so why would you do it in 2011?
In essence, less buyers means better deals and, perhaps surprisingly, now is a great time to consider that dream property abroad. Really? Am I really suggesting that in the most uncertain economic cycle since the early 1990s you should go gallivanting overseas to spend hard-earned cash on a luxury?
Well, yes I am. Subject to certain conditions of course: whilst the game is the same, the rules have changed. The credit crunch will hit you this year. Pressure on prices has fuelled inflation. Tax has gone up. Fuel duty has risen and wage settlements are fairly static. All of that means less money in your pocket to spend or invest.
Interest rates remain low. Yet the amount you are being charged for a mortgage coupled with the arrangement fees and uncertainties over future interest rate rises make property purchasing a tricky business.
And, that's if you can get a mortgage offer anyway. Instead of looking at market prospects and investment returns, whether you buy is totally dependent upon your personal situation. It's vital that you understand your motivation, reasons for buying and financial position. In the past the buying abroad bandwagon was just that – everyone seemed to be doing it, so others jumped on! There's nothing wrong with that but you can no longer obtain the big mortgages that were available.
The rental market isn't as robust and transaction volumes are low. A property abroad isn't as liquid an asset as it once was. Add currency risk and the spectre of rising interest rates and there's a lot more to consider. While it might sound like I'm trying to talk some of you out of taking the plunge, if your personal situation is right now is a superb time to buy. When people are exiting a market and volumes are low, provided that you can afford to buy, this moribund market is a far better time to purchase than a hot one. You'll get a better deal and have more time to make your purchase.
The first thing for you to do is examine your finances. If you have money in the bank, every pound you have will only be worth 96 pence by this time next year unless you are getting a decent rate of interest.
Which you won't. So what's the alternative? Stock market investments. I like stocks and shares but the market is so volatile at the moment that it's hardly a safe place to invest. How much do you spend going on holiday every year? Take a look at that amount of money and if you can buy a place that's not only an investment but also costs less in pure running terms than
the amount you spend – you might even save a bit of cash with a holiday home abroad.
In essence this is a market for those who are not borrowing to buy. Or if you are borrowing you are using a lot of equity to make the purchase. There are some superb bargains out there but you are going to have to do more research and work harder to ensure your purchase is a good investment. I am all in favour of picking a holiday destination or home in a country that's cheap to get to and where the low-cost airlines fly. And bear in mind that with the increases in air duty for long haul flights, short haul destinations are becoming far more attractive. If it's easy to get to, you will use the place more. If you are only going to pop over once a year then to be honest, a property abroad won't be a great use of your money. Go somewhere four, five or six times a year and suddenly it makes sense.
Personally, I am very fond of France and Italy. These countries are liquid in terms of their own domestic property markets but also have a long and credible track record of performance for overseas buyers. That's not to say you should not consider going further afield. In my view, however, risk minimisation combined with your own particular circumstances will lead you to the best decision. Owning your own property abroad can be wonderful. However you need to do your research. It's probably the most important thing you can do. Visit the place you are going to buy time and time again. Get to know the locals, find people who can watch over your property when you aren't there and make sure it's easy for you to get to. Of course, you may want to let your property when you're not there – fine, but again the team you have in place to make sure things run smoothly is so important. When I chose to invest in the French Alps, I did so because I knew the resort. It's a summer and winter destination, the property management team is first class and it's easy to get to.
Door to door in five and a half hours. If you do your research, budget carefully and buy wisely, long to medium term, you should do well. Meanwhile you'll have a splendid bolt-hole to use for holidays during these dark and depressing times.