MARKET PERFORMANCE AND INVESTMENT
POTENTIAL

With traditional favourites such as Spain and France becoming saturated with investors, and their markets currently experiencing sluggish levels of growth, buyers are looking for alternatives, and in the majority of cases, want to experience something of the country and culture in which they choose to purchase. Eastern Europe offers these opportunities, whether it is a villa in Turkey, an apartment in Bratislava, or a traditional stone-built house in Croatia.

While the concept of buying in Eastern Europe may seem like a new phenomenon to many, most people are aware of the staggering price hikes that have occurred due to the media spotlight the area has been under. Investors and budget flights have already made huge progress in attracting the attention of a wider audience, spurred on by the accession of eight countries into the EU. Prices are still leaping up – sometimes at a rate of 30% to 40% per annum – and in some areas, such as Prague, property prices are already on a par with the UK.

While Eastern European countries are seeing some of the largest price rises in Europe, don’t assume high rates of appreciation are guaranteed. In some countries, such as Bulgaria, market growth has slowed from 37% to 4% in some areas. Nevertheless, it is not unheard of for investors to experience appreciation rates of 20% in six months. In Romania it’s possible to buy a parcel of land, leave it untouched for two years and then sell it on for twice the price. Parts of Turkey have seen price hikes of 30% to 40%, while in Dubrovnik they have risen by 50% over the last two years. However, some countries have yet to experience a boom period like those of Prague and Croatia in early 2003, so investors should keep their eyes open.

The question to ask is whether or not the market will continue to expand at such a high rate, and if this has any relevance to your purchase. Experts believe that the market will continue to grow – albeit at a slower rate – simply because property prices remain low when compared to the UK. However, when looking at a country, you should realise that in rural areas where demand for property is low, you will not experience the same rate of appreciation as you would in a major city or resort. Also, if you are looking to make money from renting your property, the market will not perform uniformly. A stone-built house in inland Konya in Turkey will not generate the same income as a coastal villa in Bodrum. Do your research and ensure you buy in an area which experiences high demand for holiday rentals if you intend to let, and experiences healthy appreciation and a high turnover rate if buying to sell in the future.

At the end of the day, if you are looking to make money from your property, your own feelings must be superseded by what will appreciate well and sell easily, and you should go on to choose your location based on these findings. You must assess how vulnerable the market may be and whether the risk is worth it – most investors say yes, as the financial rewards can be substantial. The best advice on offer is to invest in several markets and not, as the saying goes, put all your eggs into one basket.

PERSONAL PREFERENCES

It is essential that wherever and whatever you choose, you buy a property that fits your requirements and intended usage. If you’re looking to invest, you need to assess whether the current market climate will suit buying off plan or a plot of land. If you are purchasing a holiday home then you need to decide what you will be spending your time doing and what your motivation for purchasing is. If your intention is to relax on the beach, then ensure you know which country offers the best stretches of coast – for example, Bulgaria’s Black Sea Coast and Croatia’s Istrian Peninsula. Do you want to be near mountains or in the countryside? Do you intend to let your property? If so, you will need to ensure the furnishings are appropriate and the property is close to attractions and the airport. How far do you want to be from the UK and how easy is it to get there? This applies both to flight times and time spent travelling to the property from the airport. Whatever your specifications, it is important to choose a country and a property that suit your personal tastes and requirements. For example, those seeking an easy-to-reach holiday home should consider Croatia, the adventurous DIY enthusiast should look to Montenegro, while Turkey is a popular destination with retirees due to the large expat community. With Estonia currently topping the charts for price growth, the Baltic States are a good location for investors, while Bulgaria has been dubbed the new Spain due to the new-build phenomenon on its Black Sea coastline.

Ask yourself the following questions to help you narrow down the choices:

• 1.What will I be using my new home for?
• 2.Is there a specific country or culture I like above others?
• 3.Is a sunny climate important to me?
• 4.What can I realistically afford?
• 5.Am I aiming to make money from my property?
• 6.Will I be looking to retire to my second home one day?
• 7.Do I want to be within two hours of the UK?
• 8.Do I want to be able to speak the language?

BUDGET

One of the most important factors to establish is your budget. Whether you have £10,000 or £1 million you must have a detailed idea of how much you can spend and also what extra costs you will be faced with. Some areas of Eastern Europe are obviously more expensive than others, due to the existence of regular budget flights, an established local market and high demand with low availability. However, if your budget is tight, it is important to remember that cheap doesn’t always make for the best buy. It may mean accessibility is poor, or that the property requires renovation – which can mean large construction bills – and generally you should factor an extra 15% on top of your renovation budget as a safety net. If you do buy cheap, you should ensure you have done your homework and are aware of the potential for growth in the market, enabling you to make your money back in the long run.

Many people fall into the trap of thinking that letting their property can cover all the costs of their mortgage and upkeep. While this will bring in a nice lump sum, you should not rely solely on it to cover all your costs – ensure you can pay the bills yourself. In terms of added costs, you should always secure quotes from a variety of estate agents to ensure that you aren’t paying extortionate fees – they can range from 2 to 6% – so shop around to get the best deal. It is also worth seeing if you qualify for any fiscal or tax benefits from purchasing in one country over another, or for a certain kind of ownership – for instance, if you buy through a company.

Finally, there is no point in buying a second home if you are only going to land yourself in debt back in the UK. Think carefully, budget wisely and always ensure that you take expert advice.