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Appetite for European property investment on the rise

27th April 2006 | back to article listings BACK    print this article PRINT

Property investment for many in the UK has become a central part of planning for the future and the European market is understandably attracting much of the interest.

While there is of course a natural attraction to the basic idea of investing in property overseas, experts point out that the returns can also be exceptional.

In an assessment of some of the legal aspects of foreign property investment, Legal Week Global concludes that UK investors perceive "an expanding European investment horizon" where the outlook for European property investment is brighter than in the UK and stronger than other asset classes in Europe.

Among Europe's established property investment markets, the report lists Paris in France as well as Madrid and Barcelona in Spain.

A secondary tier of investment popularity is also identified, however, with Cyprus and Bulgaria named among the key hotspots. While much of the interest is in commercial property in the form of retail parks and office space, residential property investment is also singled out, with Bulgaria one of the most notable examples for this kind of project.

Investors going into the European property market without any guidance from property experts are inevitably exposing themselves to unnecessary risk, but the Legal Week report concludes that despite "spectacular" performance during the last year or two, it is generally imagined that the market is capable of delivering further profit growth.

Purchasing an investment property overseas inevitably involves a degree of risk and it is an issue that all investors need to weigh up before making a decision.

Until very recently, Bulgarian property was seen as one of the high risk options, but steady growth in Sofia, the Black Sea resorts and in the ski towns such as Bansko, has convinced many that the market is becoming a much safer bet.

EU accession remains one of the key issues for many, however, and it is certainly a development that will reassure many of the country's potential for growth.

In terms of rental potential, investors are much more likely to opt for France or Spain and buy-to-let investment is indeed becoming one of the most popular strategies for UK buyers.

Deciding whether a buy-to-let investment will be worthwhile is perhaps a more complex process than many appreciate, as it involves a consideration of not only rental income but also long-term capital growth.

Writing for the Scotsman, Steven Currie has recalled an incident in which he was asked whether a particular property would be a good residential letting investment.

Mr Currie estimated that rental income would be in the region of 650 per month or 7,800 a year, which would produce an unspectacular gross annual return of less than five per cent. Despite this, he concluded that the property was very much worthwhile because capital growth was ultimately a more important factor in terms of the end value.

Buy-to-let investment abroad can be particularly subtle in this respect and investors need to evaluate the respective benefits of potential rental income and capital appreciation before making a final decision.

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