Should UK homebuyers be looking overseas for their first investment?
It has long been suggested that the UK property market is fast running out of control and way beyond the reach of first-time buyers. We have seen the income to value ratio creep higher, we have seen the London property market reaching record highs and despite attempts by governments and the Bank of England to control the market, UK property prices are still edging higher. This is set against a very difficult backdrop for the European real estate market which in many countries, such as Spain and Portugal, is proving to be very difficult indeed.
There is growing evidence that many would-be UK homebuyers are now looking overseas as their first move to get onto the property ladder. Is this a sensible move and what is the motive behind it?
Affordability, affordability, affordability
If you research the UK property market you will very quickly find that many of the major cities and towns of the UK have seen property prices creeping higher in recent times. Indeed the London property market is now back above the all-time highs seen in 2007, prior to the US mortgage crash, and while price rises across other parts of the UK have been less dramatic, prices are still moving higher.
Quote from PropertyForum.com: “The real estate market is enormous and with both short-term and long-term funds now looking towards property investment, it can be difficult to find the right property. However, there are a number of simple factors you need to take into consideration when finding the perfect investment property which will maximise your potential profits.”
As a consequence, more and more UK homebuyers are now looking towards overseas markets to buy their first property investment in the hope that they can eventually climb aboard the UK market. While possibly a little surprising to many who follow the UK property market, is there long-term sense in looking overseas before returning to the UK market?
European markets in the doldrums
Despite the fact that record real estate investment is pouring into the European market, mostly from outside of Europe, there are still many difficulties ahead in the short-term. The European economy as a whole is still struggling, the German economy is not as robust as many had hoped and austerity measures are causing serious problems with economic growth. Against this backdrop it is difficult to see any short to medium term uplift in European real estate prices but perhaps if we look a little further ahead there is significant potential?
However, a word of warning to those looking overseas without doing their research, not every market in Europe and around the world will recover quickly. There is no doubt that some areas of the European real estate market will take many years to recover with enormous stock overhangs as local banks look to jettison their unwanted portfolio properties. This is likely to see some property markets under serious pressure for the foreseeable future and some may fall further in the short-term.
Currency risk
It is also worth noting that there is a currency risk when looking to buy properties overseas where very quickly a paper profit in the local currency can disappear once exchanged into your domestic currency. This may not be an issue for some investors looking overseas, eventually hoping to repatriate their funds to the UK, but it is certainly something you should have in mind for the future. As with any overseas investment you need to go into it with your eyes open, you need to do your research and be fully aware of the risks and potential rewards.
The idea of using existing funds to acquire properties in “undervalued markets” overseas is certainly an ingenious way of eventually gaining access to the UK market, after hopefully banking a profit. There are risks with this particular strategy, you may be left with property you can’t sell and those who do not have a strategy in place may actually end up in a worse financial situation than they started. In theory a potentially lucrative strategy, in practice you need to do your homework, be fully aware of the risks and rewards and in many cases expect the unexpected!