Should you buy in the UK or overseas?

by John Fitzsimons on 07 May 2010  |  12 comments
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If you're looking to invest in property, are you best off putting that money into a British property or buying abroad?

Today's debate is on whether you should invest in a property in the UK, or instead look overseas.

We asked investment experts Stuart Law, chief executive of Assetz, and David Brown, commercial director of LSL Property Services PLC to tell us what they think.

Stuart Law, chief executive of Assetz

Look to buy abroad

The landscape of overseas property investment has shifted greatly during the global financial crisis but many destinations still promise excellent returns for investors.            

The strength of the pound is an obvious consideration when buying a property abroad. However, as it looks unlikely to make any significant gains on the euro or dollar in the short term, any savings that could be made when it does improve could be cancelled out by any house price growth as demand returns through increased buying power. Now is as good a time as any to look to foreign property markets, particularly those where mortgages are available so as to limit the amount of sterling needing to be converted.  

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A number of overseas locations have witnessed an unwavering demand for property in the last couple of years. Wealthy consumers continuing to buy property in popular European destinations, such as France, has meant that prices have remained strong in most of the prime tourist locations. However, in many other countries prices are currently at their lowest levels for several years, with some, including Spain, witnessing a reduction in price by as much as 50%. Buyers keen to buy in such locations should look to take advantage of these exceptional savings whilst the market is depressed.  

As in the UK, the number of new development starts is down and unlikely to reach previous levels for a very long time. As a result, the laws of supply and demand will begin to kick in, as they did in the UK market. Limited ongoing international development in many locations will underpin pricing and limited rental stock will also help to lift rental income, further supporting prices. Every cloud has a silver lining and this reduced supply will benefit buyers over the medium term.

When investing in property abroad it is important that buyers remember that while it is easy for investors to get a low interest mortgage in some countries such as France, in others, for example the US, it is very difficult. Repossessed houses and apartments in Florida are next to impossible to mortgage. In this case, overseas property investment may be more suited to cash buyers or those with good home equity, but the weak pound will dilute buying power. Nonetheless, buyers may well find that price discounts outweigh a modestly weaker pound in some destinations.

Buyers should also remember that while certain destinations continue to offer excellent investment potential, locations that are suffering such as Dubai still offer the potential for excess supply above demand to hold back prices for years to come. Assetz has always advised investors to take a long-term view, and now more than ever they need to prioritise strong and realistic rental income over instant capital growth. After all, strong demand for property to rent will underpin prices and drive potential future capital growth.

Whether you’re an experienced investor with hundreds of properties in your portfolio or looking to buy your first, it is essential to have an exit strategy in mind for the future, and buying a property in a location that still has strong holiday demand, or lies in a city with strong economic growth prospects will serve you well at today's prices.

• Adopt this goal: Become a buy-to-let landlord

David Brown, commercial director of LSL Property Services PLC

Buy in the UK!

According to our most recent Buy-to-Let Index – compiled using figures from the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains - rents rose another 0.3% in February. That means the average rent in the UK has now reached £658 per month - 3.2% higher than a year ago.  Yields on buy-to-let property rose to 4.8%.

As a result, the total return from investing in buy-to-let over the last twelve months reached 10.6%. In an era of low interest rates and poor returns from equity, that’s enormous. To put it in context, it’s the highest level since LSL Property Services plc began compiling figures two years ago. And it comes despite a slight drop in house prices in February.

This means it’s a great time to be a UK-based property investor. The short-term glut of supply in the rental market at the end of 2009 and the beginning of this year as landlords rushed to grab the Stamp Tax break has now disappeared. Rents are rising again as a result. 

Having said that, landlords in southern England have made better returns than their northern counterparts over the last twelve months. With the south producing stellar returns, the midlands are broadly in line with the national average, while northern regions are lagging far behind. A landlord investing a year ago in London would have made an average 16% return, equivalent to over £33,000 on a typical property, while one in the north east would barely have broken even, scraping in just £1,700. This is all about timing. The recovery in the south began much more quickly than in the north – the ripples from the housing downturn are still affecting the market in the north, whereas the south has been enjoying a new wave of optimism over the last year.

The widening gulf in buy-to-let returns has been driven more by increasing property values than rapid rent rises. The picture on rents has been much more mixed with no particular regional pattern emerging. So we expect returns to improve in the north as the recovery in south spreads out – although it may lag behind for a few months yet.

Either way, as the housing market pauses for breath landlords who missed out on the opportunity to grow their portfolios during the Stamp Duty holiday are now able to pick a new property slightly more cheaply. Don’t hang around though. Soon first time buyers will start taking advantage of the Stamp Duty threshold rise, which will artificially pump up prices again.

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