Buying Property in Europe ? How does it all compare?

From The Independent
Graham Norwood
Published : 23 March 2005

Tim Johnston and Don Ryder are the two faces of property buyers in Europe. Tim hopes his new homes will soar in price by 40 per cent in 2005 despite the slowdown in the British property market - because he has bought in Eastern Europe.

"I sold my flat in Fulham for £275,000 and with the £60,000 equity I've put down 12 per cent deposits on three flats in Eastern Europe with another one to come," says Johnston, a telecoms executive now working for an estate agency.

His portfolio consists of: a one-bedroom flat in the Czech capital, Prague, costing £38,000 and which he will let out to corporate tenants; a two-bedroom flat in a new holiday resort in Croatia for £75,000 that he will rent out to holidaymakers; a two-bedroom flat in an East European ski resort costing £42,000, again for holiday lets; and a flat in Slovakia that he will buy in 2005.

By contrast Don Ryder, a food company employee from Cheshire, says he has set his heart on living in Spain. He has now sold a Welsh weekend home ahead of making what will eventually be a permanent move to the Costa Blanca with his wife, Carol.

Last year they visited more than 10 different properties within a one-hour drive of Alicante before deciding on their chosen two-bedroom house.

"We're going to rent it out during the summers and stay in it ourselves for some of the winters. Prices have been rising a little - about 5 per cent or so, most years - so it'll be a long-term nest egg for us as well. The aim remains to retire here in a few years. At which time we'll sell both our main house in Cheshire and the new home in Spain, and buy a bigger place for our retired years," says Ryder.

However, even this small property in a densely built area of other holiday homes will cost £155,000 - a figure that is now inexpensive by Spanish standards, where sea-view homes with four bedrooms and a private pool can easily exceed £650,000.

So, two men with two different purchases typify the options in Europe. But is the West past its best as the sun rises on the East European property market?

Definitely not. There are plenty who say traditional holiday home markets in France, Spain and Italy still offer the best quality and locations. With prices rising at between 5 and 10 per cent per year in most of these locations - still more than that in Spain - these homes are a predictable, solid investment.

Charlotte Billington of Ultra Villas, which concentrates most of its property sales in Spain, says: "A place like Spain has proved to be a good sustained investment and hard core investors can get steady, strong appreciation. It may not be as high as Eastern European resorts claim on their cheap properties but a 100 per cent gain on a £15,000 flat in Eastern Europe is still only £15,000. That's peanuts."

International homes consultant James Barnes of Newfound Properties says that Western European resorts have historic and abundant infrastructures, unlike the East. "Some parts of the East have beaches, hotels and flats but nothing behind them - their success may not last."

But there is no disputing the growing popularity of areas like Slovakia, Hungary and the Czech Republic. Their prices are so low that they appeal to a new generation of British buyers, and high demand means these homes will see big price rises of up to 30 to 40 per cent if the pundits are correct.

John Howell, an international property solicitor, says most of East Europe has become easily accessible in recent years thanks to budget airline services, and their property values reflect a young market. He predicts price growth will easily outstrip traditional holiday home investment markets like France and Spain.

Some areas have already risen extensively - for example, Dubrovnik has increased 50 per cent and parts of "tourist" Turkey by 30 to 40 per cent in the past two years. He tips areas such as Montenegro in the Balkans, which has remained virtually undiscovered.

Petra Gajdosikova of Slovakia Investment Property adds: "Slovakia's fast-growing economy, as well as its political and social stability, has kick started a real boom in property prices. Bratislava is still the most undervalued EU capital and economists predict between 15 and 20 per cent annual growth for the next three to five years."

In Estonia's capital, Tallinn, prices rose 12 per cent last year. Some suburbs have risen by 100 per cent since 2001 although city-wide prices have risen by an average of 40 per cent.

"There have been very strong increases in Estonia over several years but compared to some markets there's still a long way to go. We predict good capital growth for some years to come as Western companies move in, in greater numbers," according to Ben Mason of Someplace Else, a consultancy specialising in emerging markets.

But there are bureaucratic downsides to buying a home in Eastern Europe. In many of the countries there are disputes between leaseholders and freeholders over "true" ownership of titles. Some buyers must form companies before being allowed to buy. And if a country is outside the EU, the interest rates on borrowing can be up to 7.5 per cent.

In reality, whether it is East or West, you pay your money and you take your choice. But you must also weigh up your risk.

Richard Donnell, head of research at property consultancy Savills, says the benefit of Western European investment is that although the market is drifting a little now, the long term trend is consistently upwards.

He says: "On a risk scale, investing in a known quantity in the UK or Western Europe is pretty low. In Eastern Europe the returns in the next year or two may be good but no one knows about re-selling, national economic performance or what happens in five years' time. That's a risk of nine or 10. High rewards of course - but more risk."

Contacts: John Howell & Co., 020-7420 0400; Newfound Property International, 020-8605 9520; Slovakia Investment Property 020-7152 4014; Someplace Else, 07734 808216; Savills, 020-7016 3740.

Churchill Properties Overseas, 01983 550400, Churchill Overseas