Overseas Property World

The world is still turning! As we entered the second half of 2008 and progressed into 2009 it seemed it was going to end. Not the world, world, but the overseas property world. Yet… here we are, just over a year later and the overseas property industry is clambering back onto its feet and trying to work out exactly what has changed: is speculation really dead? Is it really only cash-buyers that will buy in 2010? What damage has been done to off-plan buying?

Those are just some of the questions dominating the minds of those with a vested interest in an overseas property resurgence. Of course I don’t have all the answers, all I can do is explore the questions and hope that a few potential answers pop up.

The biggest problem in working out what we are faced with in the coming year and beyond is working out what is really going on at the moment.

Take Florida for example; on one hand you have the reports of foreigners on buying sprees snapping up below-market-value properties, and on the other you have a tourism industry still completely on its knees, property values lower than their bricks and mortar replacement cost, and miserable expats stuck in negative equity. Both reports are true, which makes it hard to judge what the market will do this year. That is only one example; there are many similar paradoxes out there.

The most promising indication that things have been improving in terms of demand for overseas property, is the increase in coverage in a positive light in the national press. During the dark days positive press coverage for overseas property died off altogether; already this year I have read about how Brits are going mad for Marrakesh riads, and being bowled over by Bosnian fixer-uppers.

The common theme running through these stories could be looked upon as less positive however; that is the prevalence of cash-buying. As yet there has been no definitive research into the availability of finance for foreigners in property markets around the world, but according to most reports availability of mortgages is a bit of a moot point at the moment because nobody seems to want one.

There are a number of potential explanations for this:

• A: There are very few investors in the market, and lifestyle buyers are tending buy with their savings, which has always been the norm anyway.
• B: People are putting their savings into property as a tangible asset to hedge against for inflation and currency devaluation
• C: No one wants to touch a foreign mortgage because of the volatility of foreign exchange rates, and/or because property values could still fall leaving them in negative equity
• And D: The obvious reasons like lack of availability, mortgages being expensive for those with smaller deposits, and the continued risk many still face of losing their jobs.

There is also the fact that many people who took overseas mortgages, did so on the basis that the rental income from the property would pay the mortgage repayments, most agents now have more sense than to make such suggestions lest they make it a guarantee.

The good thing is that off plan appears to have survived the crunch. Thousands of people lost millions of pounds, dinars, euros and every other currency on off plan properties that will never be anymore than plans and pipedreams. But off plan is still the best way to buy an overseas property, not only because of the discounts but because it tends to be the only way foreigners can get a decent level of variety in overseas markets.

What has changed is that people are no longer buying on the strength of an agents’ word, they are conducting their own due-diligence at great length before making a purchase. But this can only be good for the industry, for the few shall no longer ruin the reputations of the many.

Another common trend that has emerged is the fact that buyers are favouring the safety of established markets over established ones, with Portugal and the Algarve, the Balearics and France expected to be three of the favourites in 2010. I don’t disagree with that but I also see a return to buying in the Caribbean and Asia in places like Koh Samui and Phuket especially.

I told you I would raise more questions that answers, but I hope the common theme that emerges from this article is that it is not all doom and gloom. Whatever the rhyme reason or method of payment sales have been increasing slowly since the middle of last year, and for the agents who learn what today’s buyer is looking for (safety and to quench their thirst for absolute knowledge about what they are buying) 2010 could be the start of a prolonged and successful recovery.