I have just read a press release that said Britons that are choosing to sit on their hands because of the credit-crunch, and postpone buying their overseas property could end up missing out on the potential gains, because in Europe and other places overseas not so badly affected by the credit crunch property values continue to grow, and people from those places continue to snap up properties at home and abroad.
Even though I work for an overseas property company, the truth is the investment opportunity of an emerging market is not going to disappear overnight, or even noticeably quickly. In fact, because the biggest gains are to be made on off-plan properties when sold on the resale market, the potential gain can actually increase, because values will have risen on the resale market.
Of course it still is better to act quickly, because the sooner you act the more chance you have of catching some additional high level growth on the resale market, before the market levels off.
For example, I buy a 2 bedroom apartment off-plan. At the considerable discount you get on off-plan apartments because of the perceived risk of buying a non-existent property, I get it for 30% less than what the market value of the completed unit will be. Therefore as soon as the property is completed it is worth 30% more. I acted quickly just as the market began emerging and got 3 years of 20% value appreciation on the secondary market, thus I made a total 90% gain in 4 years.
But if I waited 3 years, though I would need to pay quite a bit more for the off-plan apartment, I would make around the same percentage as an immediate gain, but I wouldn’t get very long as high percentage growth on the resale market, I would probably make a 60% gain over 4 years, you could say I lost just over 1% of my total potential gain every month I waited.
All in all, it will always be better to get in early when buying an overseas property, especially in an emerging market, but I don’t agree that anyone should be caused to panic and make a rushed decision.
Buying off-plan is certainly a great way to make good profit on a real estate investment, but it shouldn’t be forgotten that the fundamental rules of smart buying still apply. Location is the one thing you can’t change so make sure it has some intrinsic market value of it own.
There have been plenty of off-plan properties in Bucharest, for example, that were snapped up by hapless investors 3 years ago, who are now struggling to even realise the original advertised price, as they don’t happen to be in the “fashionable” part of town.
And now, even that part of town is seeing drops in price as it has simply become too sauturated by foreign investors buying off-plan, meaning an influx of several hundred apartments hitting the market on completion at around the same time! The rule of economy’s supply and demand means that these apartments don’t get to realise their potential; following the crowd is not always a good move.
My advice, go off-plan by all means, but take the time to check the location (by local standards not the sales pitch of the agent) also if it looks like all the buying is being done by investors from abroad, chances are they will become your competition on completion, so be wary.
Look for where things are happening within the country; infrastructure, investment, international companies moving in etc, and try to get in at the beginning if you can!
Good luck
Andy