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Are domestic prices sending investors abroad?

7th March 2007 | back to article listings BACK    print this article PRINT

The constantly rising price of property in Britain is frequently in the news these days, often with a warning that it is restricting the ability of first-time buyers and young professionals to get on the housing ladder. However, the issue may also be having a bearing on the decisions of some investors.

According to a recent report from Barclays Wealth Management, around 79 per cent of UK investors looking to buy a property are thinking of buying abroad because of the rising cost of houses and flats in the domestic market. Foreign property offers an attractive alternative because of the relatively lower cost combined with the potential high rental yields of a purchase in the right area.

A further incentive to some is the possibility of letting their property to management companies which provide a guaranteed rental income, such as under the French 'Residence de tourisme' or leaseback scheme. Spain also operates a similar scheme, which sees the property buyer reimbursed with the VAT on their property purchase over a ten-year period (eleven in France). Some buy-to-let investors have also been tempted by the recent cut in Spanish capital gains tax for non-residents, down from 35 per cent to 18 per cent.

Paying less tax was also cited as a key reason for looking for a property abroad by 57 per cent of respondents to the Barclays survey. Mark Kibblewhite, managing director of Barclays Wealth's private banking division, says report reveals "a rising scepticism" on the part of investors towards the UK property market. He then suggests that this may make it "a challenge" to retain investor wealth in the domestic market.

Yolande Barnes, head of research at international property consultants Savills, agrees with this prediction. She notes that, in the UK, "the top end of the market for homes is becoming constricted" and sees investors looking elsewhere to spend their capital, remarking: " Overseas purchases are increasingly common and we expect to see this trend continue."

The overseas property market has also benefited from the recent boom in low-budget airlines. There are now more carriers than ever before flying to wider range of destinations than ever before. Anecdotal reports of foreign properties sited near budget routes doubling in value abound. A recent report from Banco Halifax Hispania, a Spanish arm of the British building society, concluded that the rise of the budget airline had contributed to an investor rush on Iberian property. Ian Smith, head of European operations at Halifax, said the demand from British people for property in Spain "has not only been fuelled by the high demand for low rate Euro mortgages, but also by the boom in low-cost, budget airlines".

This is a press release by Assetz also available at http://press.assetz.co.uk/articles/3331.html. Alternatively, please see our full press release archive.

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