This week I’m going to address the very difficult task of blending a holiday home and investment property into one.
While most people (myself included unfortunately) simply cannot talk about property anymore without discussing how much profit you might make - let us not forget that people were purchasing holiday homes abroad long before the concept of buying foreign property in order to resell at a profit became an Irish and UK phenomenon.
Brief History of Property Investment
In the 1970s, 80s and early 90s purchasing property abroad was only for wealthy families with the money and knowledge (solid information was much harder to come by in those days) to purchase a dream property. In the mid 1990s, foreign property exhibitions and dedicated overseas property newspaper supplements first began to appear promoting both the holiday and the investment benefits of Spain, Portugal, Florida, Greece & Italy.
In 2003 came the emerging markets, with pioneering research and old fashioned hard graft from the founders of Someplace Else bringing the markets of Montengro, Belize, Latvia, Lithuania & Argentina to the ever expanding groups of overseas property buyers.
1995 – 2005 really was an incredible time and is very fondly remembered by veteran overseas estate agents, developers and investors. Never before have real house prices risen so fast for so long in so many countries. The total value of residential property in developed economies rose by more than $30 trillion between 2002-2007 - an increase equivalent to 100% of those countries' combined GDPs. The surge not only dwarfs any previous house-price boom, it is larger than the global stockmarket bubble in the late 1990s (an increase over five years of 80% of GDP) and America's stockmarket bubble in the late 1920s (55% of GDP).
Where to next?
Looking at what is happening to property prices in Ireland and what has happened to the once glorious southern coast of Spain, one could be forgiven for thinking that the days of purchasing a holiday property investment are long gone, and that one must venture into deepest South America or Africa to make those kinds of returns in a nice climate again – not so in my opinion.
For those who still yearn for a property investment in a beautiful location that they will actually want to use themselves from time to time, that is easily accessible, that isn’t swarming with white bellys, rough accents, fish & chips shops and where the government actually designs and implements sustainable planning policy that protects a beautiful coastline – then my suggestion is that you go and visit Montenegro as soon as possible.
Montenegro
I spend the bulk of my travelling time in overcast cities, but this week has been different as most of it was spent touring Montengro in the charming company of Sanja Todorovic, the general manager of our local office there. I have simply been bowled over by this tiny countries spectacular beauty (most of the photos in this newsletter were taken this week). Montengro is small but has a very diverse landscape with sandy beaches, majestic mountains, deep canyons, huge lakes and a unique cultural and architectural heritage from Roman, Venetian and Ottoman occupations.
It is one of the fastest growing tourist destinations in the world, with incredibly ambitious plans to develop world-class marinas and ultra luxury hotels in an effort to win back the prestigious reputation it once enjoyed as an enclave for the rich and famous.
It is also one of the few truly beautiful coastlines left in Europe where prime luxury property can still be bought for less than €150,000. More details to be found on www.someplaceelse.ie
Have an enjoyable weekend
Regards
Colin
Friday, April 25, 2008
A Short Note on Financing
This week, I thought I’d write a little more about financing, as I feel strongly that agents and developers should be doing much more to ensure their clients understand how it works and how it will affect their investments.
I can’t emphasise how important it is to research how much finance you are likely to receive before putting down a non-refundable deposit on a property - and you won’t find many estate agents or developers who will write that to you in an email. Someplace Else has relationships with English speaking brokers and/or banks in all the countries we deal with that offer financing to foreigners, and one of our key aims in 2008 is to continue to strengthen these relationships, thereby ensuring that our clients always have quick access the best possible financial advice.
Firstly, the lending criteria for obtaining foreign mortgages is usually quite similar to what you are used to at home. Generally speaking, you must be over 21 years old, be in secure employment, prove that you have an ability to comfortably repay, have a good credit history and aged not greater than 70 at the end of the mortgage term.
We all know that most banks do their utmost to make their lending policies and how they make money out of loans them as complex and arcane as possible. With this in mind I thought some may find be useful to have the following clarified:
Nominal vs Real Interest Rates
The nominal interest rate is merely the interest rate before it is adjusted for inflation. After this adjustment, it is called the real interest rate. This helps a country measure its price and cost competitiveness compared to others.
Fixed vs Variable Interest Rates
Generally speaking, banks based in emerging markets offer variable interest repayment mortgages to locals and foreigners, although they are constantly improving and expanding their product range as they are operating in countries with tiny amounts of personal debt. By variable interest rate I mean that the rate can go up or down and is linked to the central bank controlling the country you are borrowing from. By repayment mortgage I mean that your monthly payments cover both the interest charged and the original amount borrowed.
Mortgages.ie have a very handy calculator for repayment mortgages that allows stress test for an additional 3% if interest rates go up. Click here to find out more.
Loan To Value
I think sometimes people get too focused on LTV. It is merely the percentage of money you want to borrow compared to the cost of the property. Many banks lend a percentage of what their valuation of the property is on completion, not the amount you bought it for offplan. This is great if the price of your property goes up during the construction period, and very bad if it goes down (as some unfortunate people in Dublin are now discovering).
In Conclusion
Financing, or leveraging as it is sometimes called, is and always will be an incredibly efficient way of maximising the return on your investment. As discussed in a previous newsletter most emerging markets are nowhere near as exposed to the global credit crunch as Ireland and UK. The good news for investors is that these foreign banks are expanding access to finance just as our own are making it more difficult. And thank goodness for that.
Kind Regards
Colin.
I can’t emphasise how important it is to research how much finance you are likely to receive before putting down a non-refundable deposit on a property - and you won’t find many estate agents or developers who will write that to you in an email. Someplace Else has relationships with English speaking brokers and/or banks in all the countries we deal with that offer financing to foreigners, and one of our key aims in 2008 is to continue to strengthen these relationships, thereby ensuring that our clients always have quick access the best possible financial advice.
Firstly, the lending criteria for obtaining foreign mortgages is usually quite similar to what you are used to at home. Generally speaking, you must be over 21 years old, be in secure employment, prove that you have an ability to comfortably repay, have a good credit history and aged not greater than 70 at the end of the mortgage term.
We all know that most banks do their utmost to make their lending policies and how they make money out of loans them as complex and arcane as possible. With this in mind I thought some may find be useful to have the following clarified:
Nominal vs Real Interest Rates
The nominal interest rate is merely the interest rate before it is adjusted for inflation. After this adjustment, it is called the real interest rate. This helps a country measure its price and cost competitiveness compared to others.
Fixed vs Variable Interest Rates
Generally speaking, banks based in emerging markets offer variable interest repayment mortgages to locals and foreigners, although they are constantly improving and expanding their product range as they are operating in countries with tiny amounts of personal debt. By variable interest rate I mean that the rate can go up or down and is linked to the central bank controlling the country you are borrowing from. By repayment mortgage I mean that your monthly payments cover both the interest charged and the original amount borrowed.
Mortgages.ie have a very handy calculator for repayment mortgages that allows stress test for an additional 3% if interest rates go up. Click here to find out more.
Loan To Value
I think sometimes people get too focused on LTV. It is merely the percentage of money you want to borrow compared to the cost of the property. Many banks lend a percentage of what their valuation of the property is on completion, not the amount you bought it for offplan. This is great if the price of your property goes up during the construction period, and very bad if it goes down (as some unfortunate people in Dublin are now discovering).
In Conclusion
Financing, or leveraging as it is sometimes called, is and always will be an incredibly efficient way of maximising the return on your investment. As discussed in a previous newsletter most emerging markets are nowhere near as exposed to the global credit crunch as Ireland and UK. The good news for investors is that these foreign banks are expanding access to finance just as our own are making it more difficult. And thank goodness for that.
Kind Regards
Colin.
Friday, April 11, 2008
Lessons from Corporate Spain
Good afternoon all and welcome to the Someplace Else blog.
For the third year in a row, I’m attending a huge trade show in Madrid called SIMA, and I’ve been struck by the positive attitude of the big Spanish developers in the face of a very difficult local market.
On the one hand, they have belatedly realised that the second home / holiday market is completely saturated. They are now refocusing the sale of their new developments to the local first time buyers market, with knowledgeable (and very good looking) salespeople manning some stupendous exhibition stands offering a wide range of sensible incentives and access to finance (unlike the Irish developments mentioned in last weeks note)
And on the other hand, these same Spanish builders are announcing bold and ambitious new developments throughout South America and Eastern Europe, with the biggest announcements being made in Panama, Mexico and Romania.
This all seems to be just the latest example of a quiet revolution in the upper echelons of corporate Spain. Since the return of democracy in 1975 Spanish companies have made some tremendous progress and the country is now home to some truly world-class corporations.
Spain is already home to the biggest bank in Europe (Santander), to five of the top seven European construction groups and to the third biggest telecommunications company in the world (Telefonica). The Inditex Group, which owns Zara among other brands, recently over took GAP as the world’s largest fashion retailer. Metrovacesa, a Spanish property company, bought the HSBC headquarters in Canary Wharf last year for £1.1 billion – Britain’s biggest ever single property deal.
Much of this recent expansion has come from audacious takeovers – Santander bought Abbey National in 2004 for €8 billion, Telefonica bought O2 in 2006 for €26 billion. Equally impressive was Ferrovials highly leveraged $22 billion takeover of BAA, the company that owns Heathrow, Stansted, Gatwick and four other British airports. Nightmare teething problems at Terminal 5 aside, this is an unbelievable acquisition for a family owned company that started out building railroads in Northern Spain 50 years ago.
So it seems that the Spanish conquistador spirit is alive and well in this wonderful country, and your humble correspondent is very happy indeed to discover that these huge corporations are bravely venturing into many of the same markets Someplace Else promotes to our UK and Irish investors.
Friday, April 4, 2008
Troubles facing Irish Developers
Firstly, I was very glad to see a bumper 30-page property supplement in the Irish Times this Thursday. About 18 pages of this supplement contained property adverts, and those of you who work in the industry will know that full and half page adverts in the national press don’t come cheaply.
Upon browsing quickly through such a supplement packed with real estate adverts, you might be forgiven for thinking that Irish developers have suddenly discovered a new found optimism and have been confidently screaming at their marketing staff to secure the best position possible to promote their fabulous development in Leixlip, Celbridge or Mullingar.
Look a bit closer though and you’ll notice something very different between these adverts and the ones of a couple of years ago. In the good old days, the developers used to state a price, insert a nice picture and give you until the following Monday to reserve it. Now they are offering huge discounts. “Now Reduced!” screams one headline “Save €80,000 off your new home!” screams another. The best has to be an advert for a development in Drumcondra. Not only are they offering up to €120,000 off the last remaining units, but they are throwing in free legal advice, a €3000 holiday voucher and a €2000 furniture allowance.
For those of us who are lucky enough to be liquid at the moment, it might be tempting to rush in and take some of these units off the struggling developers hands, but my own opinion is that the worst times are yet to come. We haven’t seen any big Irish developers going bankrupt yet, but we have in Spain and we have in the US and it can be argued that the Irish market is next.
The credit crunch is a major factor and is certainly the main reason why Irish developers are struggling to raise cash, but an equally big one is simple supply and demand. Too many units were built and bought in a very small country for investors seeking tenants to pay a low interest mortgage while their asset appreciates by double digits every year. When mortgage rates started to increase and property prices started to slow, it was far easier for investors to pull out than the dozens of developers who have committed to finishing big residential projects.
Perhaps these big adverts will result in the extra sales so badly needed. Either way, you’d be hard pressed to find an Irish publication (including dedicated property magazines) with regular adverts and editorial for the countries Someplace Else Ireland promotes – Argentina, Belize, Montenegro, Romania and Serbia to name but a few.
Maybe this is because we’re not working hard enough at PR, but the big money was made in Ireland long before the 30 page property supplements arrived, and it seems to be holding just as true in the emerging markets above.
Kind Regards
Colin Murphy
www.someplaceelse.ie
Upon browsing quickly through such a supplement packed with real estate adverts, you might be forgiven for thinking that Irish developers have suddenly discovered a new found optimism and have been confidently screaming at their marketing staff to secure the best position possible to promote their fabulous development in Leixlip, Celbridge or Mullingar.
Look a bit closer though and you’ll notice something very different between these adverts and the ones of a couple of years ago. In the good old days, the developers used to state a price, insert a nice picture and give you until the following Monday to reserve it. Now they are offering huge discounts. “Now Reduced!” screams one headline “Save €80,000 off your new home!” screams another. The best has to be an advert for a development in Drumcondra. Not only are they offering up to €120,000 off the last remaining units, but they are throwing in free legal advice, a €3000 holiday voucher and a €2000 furniture allowance.
For those of us who are lucky enough to be liquid at the moment, it might be tempting to rush in and take some of these units off the struggling developers hands, but my own opinion is that the worst times are yet to come. We haven’t seen any big Irish developers going bankrupt yet, but we have in Spain and we have in the US and it can be argued that the Irish market is next.
The credit crunch is a major factor and is certainly the main reason why Irish developers are struggling to raise cash, but an equally big one is simple supply and demand. Too many units were built and bought in a very small country for investors seeking tenants to pay a low interest mortgage while their asset appreciates by double digits every year. When mortgage rates started to increase and property prices started to slow, it was far easier for investors to pull out than the dozens of developers who have committed to finishing big residential projects.
Perhaps these big adverts will result in the extra sales so badly needed. Either way, you’d be hard pressed to find an Irish publication (including dedicated property magazines) with regular adverts and editorial for the countries Someplace Else Ireland promotes – Argentina, Belize, Montenegro, Romania and Serbia to name but a few.
Maybe this is because we’re not working hard enough at PR, but the big money was made in Ireland long before the 30 page property supplements arrived, and it seems to be holding just as true in the emerging markets above.
Kind Regards
Colin Murphy
www.someplaceelse.ie
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