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Expat Investor : April 2008
Fast Facts 44481 PROPERTY INVESTMENT April 2008 ? EXPAT INVESTOR 23 Emerging markets will be investor favourites in 2008 IN ITS annual global property hot spots report, currency specialists HiFX reveals an increase in enquiries over the past three years to less traditional overseas property destinations like Bulgaria and China, while interest in old favourites such as France and Spain has declined. The Global Property Hot Spots Report, based on analysis of enquiries received by HiFX, has found France and Spain to be consistently at the top of popular destinations for Brits buying abroad in recent years. However, the lead of these traditional holiday home countries is being lessened by new emerging markets, where investors are vying for properties which will deliver quick growth. Interest in Bulgaria in 2007 was double what it was in 2005; the number of enquires relating to property in China has increased from zero in 2005 to 3% in 2007, which is more than were received for more traditional destinations, such as Portugal and Cyprus. A ten-year bull run Over the last 10 years, the western world has enjoyed the biggest property boom in its history, creating a whole generation of potential property investors. Over the last decade house prices have boomed in almost every developed market with the exception of Germany and Japan. However, with developed economy markets at their current high, investors are increasingly turning their attention away from the traditional markets like Spain and to What’s all the fuss about? The majority of the controversy and press coverage relates to those affected by a law which came into force in the Valencian region in 1994. It is called the ‘Ley 6/1994 Reguladora de la Actividad Urbanística de la Comunidad Valenciana’, translated as ‘Law 6/1994 Regulating Development Activity in the Valencian Region’, otherwise known as LRAU. Although various regions in Spain have adopted similar urban planning regulations, the application of this specific law is limited to the Valencian region of Spain, that is, Alicante, Castellón and Valencia. If your property, or the property which you are interested in purchasing, is not located in these areas, then this law does not apply to you. This law allows local authorities, under certain circumstances, to force Fast Facts 44480 owners of rural property to give up some of their land for development and to contribute towards the costs of installing new infrastructure. In places that have experienced significant growth and where new housing is required, agricultural land and brownfield sites are often reclassified by the local authorities as suitable for development. It is argued by authorities that this reclassification is in the public interest. Property owners are obliged to pay substantial amounts of money to the local government towards new infrastructure, mains water and drainage, which they are often unable to afford. The reasons behind the legislation are clear. The LRAU can prevent owners of rural property from standing in the way of development which would benefit the community as a whole by improving services or creating affordable housing. However it is argued by action groups and Spanish landowners that this law has been abused by greedy Spanish developers and local authorities. In some cases, they complain that the new properties are not affordable to the average Spaniard and instead the properties are marketed outside of Spain and sold to foreign purchasers. The groups argue that the only people to benefit are the Spanish authorities and the developers. During the last few years, delegates of the European Commission have visited the Valencian region to investigate the complaints. As a result of the Fourtou Report, issued by the European Commission in December 2005, the Valencian Government made some changes by introducing the Ley Urbanística Valenciana (LUV), translated as Valencian Urbanistic law. However. these changes were considered to be largely ineffective and recently the European Parliament urged the Spanish authorities and regional governments, in particular the Valencian Government to ‘recognise the individual’s legitimate right to his legally acquired property and to establish in law more precisely defined criteria regarding the application of Article 33 of the Spanish Constitution concerning the public interest, in order to prevent and forbid the abuse of people’s rights by decisions of local and regional authorities’. So it is all doom and gloom for Spanish property purchasers? Not at all. Firstly, this particular law, which is at the core of the controversy, applies only to the Valencian region. Secondly, the law affects ‘Rural’ land and ‘Land for Development’. Therefore, if you are planning on purchasing an off-plan property on an urbanisation or a re- sale on an established urbanisation, in most cases the land will have already been reclassified as urban or developed. If the land is classed as ‘Urban’, you will not be affected by the law and so you should ask your lawyer to confirm the classification of the land for you. People purchasing on these types of land should carry out investigations to find out what the approved development plan is for the area, whether their property will be affected and, if so, within what time period. Alternatively, we can carry out these investigations for you. Properties which fall into this category are often called ‘Fincas’. If there is a programme establishing urban development of the area, independent legal advice should be sought. You should always seek independent legal advice from a Spanish property specialist before you sign any contracts or pay any sums of money in relation to a Spanish property. Make sure your lawyer is independent and confirms in writing what he will do for you. If you don’t, then you will have little or no recourse if things go wrong! the emerging markets, such as Eastern Europe and, new for 2008, even farther flung destinations such as Brazil, Egypt and Panama. According to the Report, interest in Spain has decreased by 2% since 2006 and is 10% lower than interest levels in 2005. Interest in France remained steady from 2006 to 2007; however, enquires last year are down 7% compared to 2005. Mark Bodega, Director, explains, “It’s easy to see why investors in particular are turning their backs on Spain and examining new markets at an earlier stage in their growth cycle. In August 2007, the national median price for property sold to overseas buyers in Spain was approximately €250,000. In Bulgaria the average price was closer to €60,000. “With an abundance of low-cost airline routes, short flight times and the great weather, both countries will always be a favourite with British buyers and we expect them to remain so in 2008. However, overall, their lead is closing as the investor population continues to turn its attention to emerging markets in 2008.” Credit crunch will not squeeze French property market The well-documented global credit crunch will also affect property trends in 2008. However, unlike in some overseas property markets, experts are predicting the squeeze will have far less of an impact on the French market. Approximately 95% of French loans are fixed rate and French banks are traditionally more conservative when it comes to lending money to both French and international buyers. As a result French economists are not predicting any big rises in interest rates. Overall, prices across France are not expected to rise significantly this year, nor are they likely to crash. However, as always, there will be regional differences. Spanish market overview Talk of a Spanish property crash has been much discussed, but, according to HiFX, is not happening. Over- supply has however affected the more popular Costas and, as a result, some areas of Spain are cooling and seeing market corrections. At the same time, however, less traditional inland regions are becoming more popular with savvy buyers. Mr Bodega advises, “Buyers in Spain should cut through the current hype and think carefully about the property they are buying in order to make the most of the current market conditions. Only certain areas are suffering a slump due to over-supply, whilst others still have much to offer. Even for those looking for capital growth in the short term there are plenty of opportunities to be had in the lesser known Costas such as Tarragona, in cities, and inland; for example, in Jaen, Jerez and Cordoba.” HiFX predict newcomers to the Global Property Hotspots list in 2008 will include Panama, Egypt and Brazil. Here are some key fast facts on the next hot destinations. Panama ? already popular with retirees. ? a good year-round climate and long coastline. ? 20-year exemption from Panamanian property tax for residential properties. ? growing tourist industry. ? major construction already underway. ? cheap living costs. Egypt ? year-round sun. ? wealth of history and world–class holiday resorts and attractions. ? low stamp duty; death succession duty of 7% and no capital gains tax payable on the sale of property. ? growing economy. ? five-hour flight from the UK. ? good rental yield potential combined with low purchase prices. Brazil ? Huge economic growth predicted, however property prices remain low. Buyers beware “Buyers should remember that their choice of where to buy really depends on why you are buying and on the degree of risk that you are willing to accept. “Wherever you do decide to buy, be it Guildford or Granada, it’s imperative that you do your research and ignore the hype. “We also always remind people that they would never agree to buy a property in the UK if they did not know how much it was going to cost them; if you agree to buy an overseas property without fixing the exchange rate at the outset, that’s exactly the gamble you’ll be taking,” concludes Mr Bodega. Beware the Spanish ‘land grab’ Ashfords Solicitors specialises in Spanish legal matters in the residential property market and explains what’s been causing all the fuss in this neck of the woods for expat property investors.
May June 2008