The Tracker reveals that in the third quarter of 2006, Bulgaria has suffered a dramatic change of fortunes. With total returns on cash invested falling from 104% in June this year to 44% currently, Bulgaria has plummeted from the top of the table where it has been since March, to sixth place and is likely to drop further still.
Annual house price growth has slowed considerably, from 36% to just 17.8%, with the Bansko ski region actually showing price falls of -2.1% and Bulgaria as a whole only growing 1.6% in the second quarter. The oversupply of investment properties had led to fierce competition for rentals, which is aggravated by poor management from local agencies.
France’s consistently strong rental market, supported by a sound tourism industry and its continued popularity as a holiday destination, has precipitated its return to the top of the table for the first time in 12 months. Low typical mortgage rates of 3.1% and strong market growth of 9.1% ensure that France remains the destination of choice for many investors, who are attracted by the prospect of living there in retirement.
Graph 1: Total returns on cash invested
Poland is attracting a lot of interest and now holds a strong position in the Tracker. Accession to the EU and the arrival of low-cost airlines such as Easyjet to the major cities saw capital growth climb a steady 20% in the last 12 months. Warsaw’s property prices remain among the lowest in Europe and the introduction of major industry to the city has ensured an increasingly young and wealthy population. A major shortage of property in Poland which will take about ten years to rectify, is presenting a major opportunity for investors to buy managed new build apartments for the local rental market. Assetz predicts 20 – 30 % growth per annum over the next five years.
Capital growth in Spain has fallen from 12% earlier in the year to 10.8% currently. Assetz expects growth to continue slowing into next year, after which it will begin climbing again. Many new properties are still overpriced, but the market continues to be underpinned by strong demand from Spanish locals for their own holiday homes, as well high levels of tourism.
House price growth in the United States has reduced from 12.9% in June to 10% across the country, but is expected to fall further. With quarterly growth of just over 1% being the lowest since 1999, Assetz predicts the likelihood of negative house price growth for the next twelve months in the US, and expects to see the dollar reach over $2 to £1 sterling. This would increase losses for those investors who bought there for cash or remortgaged a UK property in order to buy, but could be potentially good news for investors who are planning to buy there next year.
Investors wanting to maximise returns would do well to consider looking closer to home, with the UK currently fourth in the table. Gross rental yields of 6.04% and capital growth of 7.4% has enabled the UK to once again compete effectively with overseas markets. Total returns on cash invested one year ago for a UK buy to let investor, are now an impressive 47%.
Stuart Law, Managing Director of Assetz comments:
“This is an interesting time for many overseas markets. Bulgaria is facing a period of readjustment after a huge initial foreign investment. While longer-term investors are still set to benefit over the next 5 – 10 years, as low cost property continues to attract holiday home buyers, there are no longer instant returns to be made in the short term. An oversupply of rental properties is being aggravated by stories of dishonest local management agencies, some of which are reported to be letting properties and keeping the cash.
“The United States could be on the brink of a significant house price retracement and the future of the property market will become clear over the next three months. It is quite possible we will see price drops on an annualised basis for the first time in decades, through 0%, into negative growth. The big question is whether the U.S. will see the same soft landing that was seen in the UK. With far fewer restrictions on available land, I believe it is susceptible to negative growth as the effect of continuous rises in interest rates over the last two years or so have caused a shock to the consumer, the effect of which is still to be fully realised.
“France, meanwhile, is continuing to perform consistently well. The majority of investors want to make personal use of their property, either as a holiday home or somewhere to retire to, and they are opting for the quality of France as a sophisticated destination over emerging markets such as Croatia and Turkey. Low deposit levels of just 15% have ensured that investors benefit considerably from capital growth of 9.1%.
“Over the last month, a number of countries such as Bulgaria, the UK and Italy have experienced small rises in mortgage rates, which has resulted in slightly reduced overall returns.
“The effect of UK immigration has been massively understated, but it is resulting in increased rental incomes, reduced void periods for investors and strong house price growth. I predict rises of approximately 5% per annum for the next three years in the UK.”
