Overseas property is a topic that is forever grabbing headlines when it comes to property investment opportunities. With travel becoming cheaper and investors becoming bolder, the overseas property market is booming. But where should the new investor be looking? Where are the predicted overseas property hotspots for 2006?

Top spots

According to Property Frontiers, an overseas property investment company, Britons are now spending more than £6 billion a year on purchasing second homes abroad. Whilst some of these purchases are made as a way of ensuring regular breaks for the family, many others are purchasing abroad as a way of extending their investment property portfolio.

In just three years this figure has risen from £2billion. According the Office of National Statistics, the average spend on a property abroad has gone from £1.50 per person in 2002 to £4.80 in 2005.

Whilst all this is encouraging, those wanting to enter the overseas property market want to know where the hotspots are for THIS year.

Bulgaria

One of the main countries attracting interest from property investors is Bulgaria. In 2005, property prices here rose by 36% and with the prospect of joining the EU in 2008 looking increasingly likely, Bulgaria is predicted to continue to offer strong growth. Bulgaria also offers a good rental return with more tourists opting for the low cost of living, world class ski facilities as well as golden beaches, rather than the more popular destinations such as France and Spain. Stuart Law, Managing Director of Assetz stated: “Bulgaria is now securing its position as a mainstream investment destination. The ski resorts thrive through the summer months with activities such as hiking, fishing and mountain biking, resulting in yields of up to 12 per cent, as much as double those in the coastal resorts”.

Bulgaria is also set to open its airspace in 2006, allowing more direct flights from the UK, boosting the tourist market further still. Bear in mind however, that although the returns may be good in Bulgaria, it is still considered very unstable economically and politically and the country’s legal infrastructure is not as advanced as in many other countries such as France. Therefore, there is a much larger element of risk involved in buying in Bulgaria.

Slovakia, Slovenia and Lithuania

If you are interested in Eastern Europe, but want a slightly more stable infrastructure, then other boom areas are predicted to be Slovakia, Slovenia, and Lithuania, all of which are seeing considerable economic growth. These have all joined the EU relatively recently and this is a good indication of their general stability and growth potential when it comes to tourism. As members of the EU, they have certain obligations regarding infrastructure which make them generally a safer bet than countries like Bulgaria that have not yet joined the EU. In a similar way, Romania, as an applicant country is really getting its act together and is considered a country to watch for property investors, in 2006.

Turkey

In Turkey, legislation is set to change in 2006, allowing foreign investors to obtain a mortgage within the country. This is predicted to have a massive impact on the property market, in Turkey. Also, as with Bulgaria, Turkey is planning to achieve accession to the EU in due course, which again is set to encourage an increase in property prices. Property Gems, an overseas property specialist has reported a capital increase of between 15% and 20% in the last few years.

Cyprus

Cyprus tells a similar story, with entry to the Euro due within the next two years, Stuart Law states: “Entry to the Euro is beckoning in 2007/8 which will pre-empt further price growth. Rental yields remain at a confident 8-9 per cent with a year round rental market in some parts of the island”.

Paphos airport is also undergoing considerable renovation which is due to be completed by 2008. This transformation is likely to mean more tourists and a growth in rental returns.

Whilst investing in the emerging market may offer the opportunity of windfall capital gains, this strategy is not without risks. Where legal and structural frameworks are not advanced, it is possible that an investor, particularly a relatively new investor, misses out on some vital information which will render their investment worthless. Issues such as proving legal title can be nothing short of a nightmare abroad, with previous owners often still having a claim over the property. These issues rarely arise in the UK due to our stringent conveyance rules. In developing countries, however, such as Bulgaria, this can be a huge issue.

Economist, Professor Michael Ball, who was responsible for the RICS European Housing Review 2005 says: “A big issue facing the new accession countries is quality of housing as they are faced with the task of overhauling the legacy of poor quality housing from the post-war Soviet years… Some countries still lack an adequate legal property infrastructure to effect necessary improvements.”

Kevin Axon, at Emerging Real Estate Ltd, however, recognises the potential gains from investing in the emerging markets, he says: “Established overseas markets are still popular but emerging markets can offer good opportunities for investors. Lucrative property portfolios can be started from as little as £30,000 by investing in off-plan developments”.

France

With both sides of the argument in mind, some investors prefer to stick to the well trodden path of investing in countries like France. Not only do these countries offer perceived greater security, but they are also much easier to get to, particularly with the increasing number of low cost airlines.

Selecting a more mature market does not necessarily mean that investors will relinquish any possible financial return. Stuart Law has stated that the French market, “despite the rate of growth being in a downward trend it is likely to level out at 10 per cent in 2006, which is still high”.

Some areas are particularly likely to see growth, for example the Languedoc region where prices have generally been lower and are now benefiting from the increase in tourism that cheap flight routes have created.

Spain

Spain is also a firm favourite with investors who make the most of the 53 million tourists travelling there annually. Whilst property prices on the Costas may be higher, rental returns are solid and reliable, offering a return of approximately 8% a year. According to experts PropertyinSpain.net capital growth is also looking strong with the Spanish Ministry of Property reporting a 12.8% increase in 2005 and predicting a further 12% increase in 2006.

Location becomes vital in a more mature market such as Spanish homes as some of the more popular areas around the Costas have increased so much in price, over the last decade, that many people believe that there is little or no money left to be made in the market. If you are considering Spain purely as an investment, it may be worth looking at the more remote and less ‘touristy’ areas away from the coast and towards Northern Spain.

Portugal

If you are interested in Spain, then why not consider Portugal? Having recently suffered from a recession, Portugal remains one of the cheapest places in Europe to buy and to live, meaning that it is gaining in population with tourists. As well as the cheap prices and the recent trend in growth of property prices, Portugal is also beginning to see more budget airlines landing, adding a further boost to the tourist economy.

Poland

Another little-thought-of hotspot is Poland. Despite being renowned for its wet and cold weather, it is also thought to be one of the countries with the greatest potential in terms of return on property investment. Poland has recently seen large companies such as Tesco deciding to open stores in the country, and it is also set to receive massive EU funding in the next decade, making it a real overseas property hotspot with some experts predicting returns of over 400%!

Research and planning

As with any property investment project, careful consideration and planning is required. When looking to invest abroad, it is vital to do your homework and to ensure that you employ good quality, reputable, local advice to ensure that you do not fall foul to the laws of the foreign land!

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