Naturally, investors have become doubly attentive and cautious about purchasing foreign housing, if the main purpose of the purchase is a reliable investment. But is it worth counting on a house abroad as a financial instrument now, or is it better to focus only on buying "for your own use"?
What is the benefit of foreign real estate?
The likely financial benefit from buying foreign real estate consists of the profit from reselling the property at a higher price and the potential rental income. But it was possible to count on a rapid increase in value before the crisis, but now in most markets real estate prices are either stable or continue to decline. There are few "growth points", and it is hardly possible to predict how long their rally will last. Therefore, investors now consider owning foreign real estate more as a long-term preservation of capital.
Now is not the time for speculative transactions, as it is not easy to resell real estate, says Yulia Titova, director of the international real estate agency Rentsale. However, it is quite possible to profitably buy real estate at prices below the market, especially if the seller has special circumstances and he is forced to make concessions in price. Such a purchase can bring profit in the long run.
Sergey Nesterenko, project Manager of Vista del Mar Phuket, agrees with this point of view. Real estate purchased at a discount can bring income from resale, and the rental percentage will be higher than the market average. The price increase is provided by the choice of a unique location, the quality of housing and the purchase price.
It is advantageous to consider options for using a mortgage when buying foreign real estate," continues Yulia Titova, "when the rental profit can repay the mortgage interest and part of the loan body. Thus, you can significantly reduce the actual value of the property, and after paying off the loan, you can use it yourself or resell it.
Elena Yurgeneva, director of the residential real estate department at Knight Frank Russia & CIS, says that Russians often buy real estate abroad as a "second home" for living during their holidays. At the same time, many owners are attracted by the opportunity to rent out this housing in the remaining time and thereby recoup maintenance costs and receive income, which varies from 2 to 5% depending on the country.
Anton Parygin, Project Manager Seaviewhomes.ru He believes that the concept of benefit is relative. For some, 5% per year is a good income, while others do not even consider a return below 20% per year. The second category often includes Russian investors. But it is worth noting here that profitability in the region of 20% is possible only when investing large sums of 1 million euros in the construction of new complexes and entire projects. When buying individual properties, the yield, depending on the country and specific conditions, will be 4-8%, at best up to 10% per year.
Elena Zorich, commercial director of Alice Estate, believes that it is possible to get income from resale, but you need to be a really serious specialist and work very carefully on this issue: the reliability of the company, the demand for real estate in this region, the timing of implementation, etc. And when renting out housing, a lot depends on the type of real estate – in resorts, rent is unstable and depends on the season.
What has changed with the crisis?
The financial crisis has changed the preferences of Russian investors - before the crisis, there was a high interest in emerging markets, but after that, more reliable directions became in demand.
Elena Yurgeneva notes that in some countries, as a result of the crisis, real estate prices have significantly decreased, but this trend mainly covered those markets where prices were "inflated" and grew at a high rate. The countries that are in priority among Russian citizens when buying luxury residential real estate have been less affected by this trend. Thus, as of the end of the first quarter of 2013, over the year (from March 2013 to March 2012), the value of real estate in London increased by 8%, in Monaco - by 12%, but this did not reduce the interest of our compatriots in exclusive properties in these countries. Given the instability of many other economies, London and Monaco are becoming the safe haven where many owners would like to wait out the crisis in the European Union.
Of course, there are significantly fewer purely investment transactions, says Yulia Titova. First of all, people buy real estate for personal use, in some cases they combine it with obtaining a small income. In the future, when the liquidity of real estate increases, it will be possible to profit from purchases made in the "low market".
Sergey Nesterenko says that financial gain is not the only reason for buying foreign real estate. This includes the diversification of assets, the desire to please yourself, and the habit of comfort, which can only be fully provided in your own home, and the choice of an alternative place of residence. For example, more and more often there are Russian businessmen who come abroad and try to create a backup site abroad. After the crisis, people began to pay more attention to money.
Elena Zorich notes that now the demand, for example, for Bulgarian real estate in Russia is simply stabilizing, the time of hype is over, when this real estate market was just opened by Russians. There is no increase in the value of real estate on which you can earn money, but with the crisis, those who want to buy real estate in Bulgaria have not disappeared. Perhaps residents of large cities such as Moscow and St. Petersburg have almost had enough of Bulgarian real estate, but now demand from the northern regions of Russia is increasing.
Alternatives to buying foreign real estate
Owning real estate abroad has its disadvantages and advantages compared, for example, with opening deposits in a bank or buying shares. A study conducted by Knight Frank on the structure of the portfolio of investors from all over the world shows that investing in property, primarily in real estate, is still the most preferable for the majority of investors - 22%. This is followed by corporate bonds (15%) and stocks (15%). Moreover, interest in stocks has increased especially recently.
Nevertheless, real estate, especially in times of crisis, is seen as a more reliable and understandable way to save your money. Elena Yurgeneva notes that there are drawbacks here: in almost all key European countries, there is a tendency to increase the tax burden and regulation of the rental market, which also adversely affects investment attractiveness.
After the story of the Cyprus banking crisis, not to mention the Russian realities that we have been living with for decades, the credibility of storing money in banks is questionable, says Yulia Titova. Naturally, if we are talking about Swiss banks, then this is another conversation, but there are also bank deposit rates much lower. Real estate is always real estate, it can be used, while, for example, in the case of deposits in Cyprus, investments turned out to be unreliable.
Anton Kharisov, CEO of the consulting company FreeDom, says that if you compare investments in foreign real estate with investments in the banking sector, the rental income will be higher than foreign currency deposits. Comparing with Russian real estate, you need to look at the investor's preferences in the near future and what currency he is betting on.
For many investors, the choice between foreign and Russian real estate is not so much a matter of profit as of reliability and personal comfort. Real estate is a long-term asset, says Anton Parygin. If a bank deposit can be closed in five minutes, then the sale of real estate always takes some time. On the other hand, investing in the right real estate is much more reliable than deposits and even more so stocks. The profitability of foreign currency deposits in Russian banks is comparable to the rental yield on the foreign real estate market.
If we compare the amount from renting an apartment throughout the year in Russia and seasonally in Bulgaria, then the benefit will be on the side of Russia, says Elena Zorich. But in Bulgaria, you can now buy a good apartment by the sea for 20,000 euros with a fine finish, which is impossible to do in Russia.
Elena Yurgeneva believes that investments in Russian real estate under favorable conditions will be able to bring income in the amount of 5-8% per year from an increase in the value of the object plus rental income. In some cases, foreign real estate can bring up to 20-30% per year. For example, the increase in real estate prices in Bali and Dubai for the year amounted to 20%, in Miami – 19.5%, to which it is worth adding income from possible rental. If we consider the traditional European markets, then the UK recorded a cumulative return of up to 9% per year, Switzerland – 7%.
Current strategies and countries
In the current economic conditions, there is no universal strategy for generating income from foreign real estate, in differentcountries need to act differently. The profitability in the affordable and luxury real estate segments also differs.
Anton Kharisov believes that a deliberately unprofitable scheme is one in which the buyer plans to simultaneously lease and use the property independently, while expecting a high rental income, which in total does not exceed 4-5%. Promising areas for renting housing, according to Anton Kharisov, can be the USA, Germany, Great Britain, and investments in the hotel business are profitable in Spain, Montenegro, Austria and Cyprus. Profitability depends on many factors, if we consider, for example, the hotel business, then subsequent management is important here. There were examples when the profitability was 20-25% per year.
Yulia Titova notes that there are objects, places, cities and districts where you can and should always buy. For example, if the picture in Spain is not the most rosy in general, buying in Barcelona is likely to be profitable.
Anton Parygin says that real estate, of course, should be rented out. An empty property in any market will only bring losses. From the resort markets, you can pay attention to the steadily growing Turkey, Anton Parygin continues.
In Southern European countries, unlike Turkey, prices are still falling. Of the countries of old Europe, the real estate markets in Germany and the UK feel the best. In Germany, real estate is still highly undervalued, and in the UK there are a lot of profitable "package" offers for investors. In all markets, the profitability of luxury real estate is slightly higher than that of economy class real estate. This is due to the fact that luxury real estate is smaller and more expensive, and therefore it is more difficult to acquire ownership.
According to Sergey Nesterenko, it is possible to purchase profitable real estate in almost any country - a good investor will be able to make money in both growing and falling markets. For example, you should not buy expensive exclusive real estate for many years just because it is very cheap somewhere now. It is better to choose places that are always in demand. For example, London or the Cote d'Azur are suitable for those who prefer Europe, and Phuket or Bali, if you prefer a house by the sea in a tropical paradise.
For inexpensive real estate, the choice is much wider, continues Sergey Nesterenko. Spain, Bulgaria and even Turkey are suitable for summer holidays, while Pattaya and some new projects in Phuket are suitable for year–round stays. But it's worth considering that inexpensive means massive. That is, the resale of such objects will not be very easy due to the large number of offers. Inexpensive apartments in popular year-round resorts are quite suitable for rent, it is better to buy several objects. Then we can talk about 5-7%, and if we are lucky, then about 10-15% per year. The situation is similar with luxury real estate, only the initial investments are larger, and the income is slightly less.
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