Overseas property markets leave investors in need of a holiday

Published 14th Dec 2009

Britons went on an international buying spree in the noughties. Graham Norwood and Patrick Collinson dig out the biggest winners and losers

Dubai World's $60bn (£37bn) of debt is not the only bad property news coming out of the sun-kissed emirate. Homes bought by investors in the region in 2007 have halved in value, and specialists predict a 20%-30% slide next year as economic woes deepen.

Some think now is the time to snap up "bargains" in the locations where prices have fallen most, including Dubai, Florida and the Spanish costas.

Last week a Dublin-based vulture fund, Deluxe Properties, said it will spend £10m in coming weeks on homes "offered between 30% and 50% below the original price" in Dubai, while website Rightmove says there has been a surge in searches for its property listings in Dubai this month.

But Robin Wilson, head of the overseas arm at Rightmove, urges extreme caution. "Although people with property in Dubai could be happy with a 45% increase in searches, it's probably for all the wrong reasons as people go 'rubber necking' through listings, cruising for the crashed property prices that made the headlines. When the bubble bursts there are bargains to be had, but buyers need to be careful they are seduced by genuine value rather than outright size of the discount. As a pure investment, you'd have to be very brave indeed, particularly over any time period not measured in lots of years, to expect a meaningful return."

Dubai's problems are a reminder, if one were needed, that purchasing holiday homes or overseas buy-to-let flats is not a surefire road to wealth. How different it was a decade ago.

Back then a Dubai seaview flat cost about £40,000 and there were very few on sale in the UK. An apartment on Spain's Costa del Sol was £75,000. Even as recently as 2005, a home along Bulgaria's Black Sea coastline was £23,000. Little wonder that Britons piled in, funding purchases by remortgaging their main homes or getting one of the 600 international mortgage products (even one for Russia) that were available by the middle of the decade.

Research by estate agency Savills found that by 2006 there were 425,000 UK-owned homes overseas – and that was only the ones declared to HM Revenue & Customs. Even so, the figure was 55% up on 2003 and included homes in far-flung hotspots such as the UAE, the Caribbean and Thailand, as well as regulars such as Spain and France.

The single largest spur to buying overseas was the proliferation of budget airlines. More than 50 were operating from the UK by 2005, with Savills estimating that a holiday home sited near a budget operator's airport attracted a 39% premium.

But EUjet, Volare and Air Polonia were the first such carriers to collapse in the middle of the decade, leaving homeowners stranded. Even hitherto "safe" areas such as Clermont-Ferrand and Saint-Etienne in France, and Menorca in the Balearics, are now hard to reach in winter. The problem is getting worse: Ryanair has just slashed flights from Stansted by 30% while BA has axed services from Gatwick to seven holiday home areas.

The mid-decade also saw the short-lived jet-to-let phenomenon, when overseas city homes were marketed to Britons hoping to cash in on long-term corporate rentals.

British estate agents suddenly started selling in locations you suspect they could not even find on a globe. Budapest, Sofia and Gdansk were to be multinational hubs in central Europe, Las Vegas would see unlimited gambling expansion, and even farms in Argentina were promoted as good punts for ambitious amateur British investors.

When the credit crunch hit in 2007 many holiday and investment markets went into freefall.

Those areas worst hit had large over-supplies of new homes, or relied on buyers getting cheap mortgages, or both. Today, those flats on the Costa del Sol and in Bulgaria are back to their original values or less, and the number of mortgage products for UK buyers looking overseas is below 50.

According to Knight Frank, prices in Bulgaria are down 28% on a year ago. Other eastern European destinations such as Estonia (36%) have fallen further. Some traditional locations have bucked the trend. Prices at most French and Italian resorts have dipped only slightly and Savills has a villa at exclusive Quinta do Largo on Portugal's Algarve that sold for £380,000 in 2001 which is now on sale for £1.1m.

Prices in France have, during the decade, outstripped Britain's at times fevered property market. Oddly enough, investors 10 years ago would have done remarkably well if only they'd just popped over the Channel to Belgium, where prices have more than doubled since 2000. In recent years, Israel has become the hottest property market in the world.

But how many buyers were snapping up properties in 2000? The reality is that most jumped on the bandwagon in the middle of the decade, since when prices in many areas have collapsed. Florida villa prices have plummeted as much as 60% in four years, while Dubai saw a 40% slump in just one year, according to Knight Frank's world price index. Ireland, once the world's most explosive property market, has ended the decade a long way down the table.

Recovery is likely to be patchy, according to index author Liam Bailey. He says: "Further falls are always a possibility while credit flows remain constrained and the global economy struggles to recover from recession."

One by-product of all this is that overseas holiday homes are likely to go back to basics in 2010. For the moment, they are not regarded as strong investments; in fact, all they're good for is having a holiday.


The pain in Spain

Nowhere rivals Spain for its boom and bust this decade. According to Knight Frank, Spain remains top of the table for price increases over the decade – up 122%. But that masks a dramatic rollercoaster ride in values, especially in the past two years.

Foreign buyers surged until 2005, triggering a building frenzy with 760,000 new homes in 2006 to cope with demand at home and from overseas investors. Then the rot set in. This year's expected total of 150,000 new homes will be the lowest for half a century, but business analysts DBK say there remains a huge oversupply of flats.

Buyers have almost disappeared. In the first quarter of 2000, foreigners bought Spanish homes worth €777m (£702m); by mid-2004 that soared to €1.9bn in just three months; today it's back to 2000 levels and still plunging.

Spain's holiday home market is now dysfunctional. Repossessions are common; some homes sell at half their 2006 asking prices; one developer has raffled 31 flats near Barcelona; Surrey businessman Kevin Sheehan sent 32,000 emails to find a buyer for his Valencia home; budget airlines have cut flights to the likes of Palma, Barcelona and Alicante.

Yet, as the Knight Frank index shows, values have rocketed if you compare asking prices with those in 2000. There is only one problem: few homes are selling, whatever the price.

Source: ' Guardian '

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