There is a certain romance about the idea of investing in European property. Europe might be our close cousin in terms of geography but there is still something exotic about investing in the continent that draws thousands of Brits there every year.
But in the aftermath of a global pandemic and with the final impact of Brexit on visas and taxes not entirely clear, it has never been more important for buy to let property investors to make more pragmatic and reasoned decisions.
Brexit continues to affect investment more than five years after the referendum, but perhaps its impact has not been as significant as you would have thought. This is particularly true in emerging markets. Whilst major cities like Paris and Geneva continue to command the highest property prices in Europe, emerging markets offer better returns for investors.
Before coronavirus landed back in early 2020, savvy investors had been flocking in their droves to ‘resort’ locations such as Portugal and Spain, primarily as they were eager to do so before any potential Brexit-based complications took hold. But that was then and this is now and we’re looking at a very different landscape post-COVID. So, is European property still worthwhile for British investors? And if so, what destinations are looking like the soundest investment prospects?
In the wake of the Eurozone slipping into a dreaded double-dip recession early in the year, the EU announced back in June that it was going to be opening its borders up to countries with high vaccination rates. So, the continent is slowly opening up to British investors and that can only be a good thing for potential investors. But is it a golden opportunity right now or are investors better off waiting until next year?
Over the last 18 months, with little else to do or spend our money on, many investors have saved up tidy little nest eggs to spend on potential holiday homes abroad. With interest rates for savings essentially at zero right now, there’s also never been a better time to put money into a property. If you borrow as much as you can in euros, it’s also a smart currency hedge, as stirling is likely to improve as the vaccine rollout continues apace.
Buyers might get preferential terms, with vendors feeling the pinch from the last few years now eager to make a quick buck. Of course, it’s also worth noting that there will be lots of investors going after the same properties, which might lead to bidding wars.
Given the recession, many countries are eager to catalyse foreign investment. In the southern Spanish region of Andalusia, for example, you’ll pay less purchase tax on properties bought before the end of 2021 and less stamp duty too. In Malta, meanwhile, stamp duty has been reduced from 5 per cent to 1.5 per cent until the end of the year.
With air travel gradually opening up, has the window of opportunity for pandemic buyers passed already? It depends on the country. Whereas prices are currently low in France, Spain and Portugal, in Italy property prices have actually increased. As always, it’s going to be a case of shopping around unless you are willing to wait until things are a little more stable.
Of course, there are also plenty of reasons to hold fire and wait until next year. For one thing, the perpetual battle of the Euro vs the Pound is in constant fluctuation as things begin to settle over both the pandemic and Brexit. Indeed, many commentators feel that the pound will get stronger next year, which means your budget might be able to stretch further if you wait. There is also still confusion over visas in many countries post-Brexit, so anyone wishing to stay at their new overseas home for more than 90 days at a time might be out of luck.
Delaying the process until there’s a little more clarity might not be a bad idea. For those wanting to let out their properties, it’s also going to be a case of playing the waiting game, as holidayers are still being understandably hesitant. This means you might have to be content with buying a property this year and having it sit largely empty until next year. The main thing is not to rush, but if you have decided that now is the time to strike, what should buyers be looking for?
First and foremost you need to be realistic with your expectations and consider what yields are required to cover costs and bring in a profit. By its very nature, the buy to let market is unpredictable and complicated and those complications are compounded even further when the properties you’re dealing with are hundreds of miles away. At a bare minimum, you should be aiming for a net yield of around four per cent.
Finding the right tenants is also paramount, as rental streams are never guaranteed and tenants can always decide to walk away at any time. When you’re in the same country this is a lot easier to deal with but when you are hundreds of miles away, it’s not so straightforward. So, always go for tenants with steady salaries, if possible. Finding the right European property is, of course, also a primary factor, but you should perhaps be paying even more attention to the area. Investing in the right location is just as important as investing in the right property, as city life tends to attract tenants all year, whereas properties based in resort towns could be vacant for weeks on end in the off-season.
This is only really scratching the surface though. To dig a little deeper we really need to examine the trees in order to understand the wood. So, how should potential investors be approaching European property and where specifically should they be looking? Many property commentators have suggested in recent years that it is the major cities that are gaining favour amongst investors, with Dublin and Amsterdam boasting the highest yields. It’s also worth noting that these are locations with year-round tourism trades to draw from, which means cities such as Berlin and Munich are also always going to be wise investments, regardless of what else is going on in the world.
Ultimately, the choice comes down to stability or high-risk – whether to invest in more expensive property in an established country for a low return or ‘take a gamble’ on countries where prices have fallen but are recovering. It’s a risk-reward situation, but the risks of stepping outside the immediate European ‘comfort zone’ are not necessarily as great as investors might think. The rewards, meanwhile, are potentially incredible, particularly for investors who are interested in one of the countries below.
While COVID might have rattled the Spanish economy, the property market has remained defiantly resilient. Spanish property prices rose by 1.6 per cent in 2020 and there has been a 39 per cent increase in viewings of Spanish properties by British investors in 2021. There has also been a massive 446 per cent increase in Britons between the ages of 18 and 24 viewing properties in Spain as many young people look to become Spanish residents to combat the end of freedom of movement. Foreign buyers make up 16 per cent of the Spanish property market and the largest group within those foreign buyers are the Brits.
Ultimately, the COVID pandemic is certainly a crisis but it will pass and Brexit has, if anything, only emboldened UK buyers. So, while recovery might be slow, there is a lot of hope for the future of the Spanish property market.
Thanks to its 10-year non-habitual resident tax programme, Portugal has long been a safe haven for expatriates. This is a scheme that offers tax incentives to property investors and is still in place today despite COVID and Brexit. Indeed, by August 2020, Portugal has already issued 900 residency permits. It is worth noting, however, that the golden visa scheme that offers real-estate investors a residency permit comes to an end in some locations (including Lisbon and Porto) this year. So any second-home buyers in Portugal that want to stay longer than 90 days at a time there themselves will need to act fast.
The French economy is in a prolonged state of recovery, with a predicted GDP growth in 2021 of 5.4 per cent according to the Bank of France. There are also currently incredibly low interest rates on French mortgages and international buyers are also at their lowest levels in 10 years. So now could be the ideal time for British investors to pounce because it’s going to be first-come, first-served.
It should go without saying that different countries will have their own diverse fiscal implications as a result of their local economies and those implications will have been complicated further by COVID.
That means potential investors should take a step back and ask themselves the following questions before making a firm commitment:
Of course, while it is reasonable to assume that taxes and other costs are likely to rise across Europe in the coming years, the negative impact of these issues has largely been offset by the low cost of borrowing. As far as Brexit is concerned, meanwhile, the implications of what will happen to British second homeowners in the EU remains to be seen.
Nobody has a crystal ball here and nobody can see exactly what will happen to the EU property market long-term. In essence, smart European investment is all about remaining vigilant, informed and wise. Indeed, the key to finding success with any buy to let investment, whether local, European or even further afield, is in knowing the facts, understanding the market and acting with your head. Because the heart, more often than not, will always lead us astray.
