U.S. An Unexpected Property Hot-Spot

In a strange turn of events, interest in U.S. property from U.K. investors has actually increased amidst fears of a U.S. recession. First we had the U.S. property market “correction” a tame word for a sharp halt and then tumble of U.S. property prices. And now we have the “credit crunch” and fears that the U.S. will soon be in recession. Despite these frightening events, the U.S. is slowly becoming an investment hotspot for Brits.According to research carried out by a Place in the Sun at a Birmingham Roadshow Late January, the increase in popularity has been quite staggering. In their annual top-twenty property destinations, based on where road show attendees are planning or would like to buy their place in the sun, the U.S. climbed from tenth position in 2007, up to fourth position this year.

This is because as the U.S. economy suffers, Brits are getting more dollars to their pound, and combined with U.S. property prices falling, U.K. investors can get excellent value for money in their U.S. property.Experts are predicting that 2008 will be a turning point for the U.S. property market, that it will finally begin to recover after a three year decline. When overseas property became en vogue, it stood to reason that the U.S. would be one of the favourites.

With so many tourist attractions in one country, New York, the Grand Canyon, Disney Land, Los Angeles, Holywood, to name but a few, the United States, one part or another is on most people’s do or see-before-I-die lists. These people are now using the price crash as an opportunity to get a holiday home within range of their favourite attractions.This popularity with tourists, given the currently low property prices gives way to high rental yields. And if the turnaround goes ahead capital appreciation should return to the levels you would expect for an established market of the U.S’ calibre, probably around the 8-10% per year.

However, as most people buying in the U.S. currently, are buying primarily a holiday home, with rental when not in use, and sale for profit of secondary consideration, the chances are present capital appreciation figures aren’t of great importance. What will be good to know is that Capital Gains Tax drops from 15% to 5% on properties held for more than a year.

In closing, if you have a special place for the States, or a U.S. attraction on your see-before-I-die list, now is most definitely the time to buy.

Don’t Buy in Dubai

Dubai was recently listed as one of the world’s top five property investment hot-spots, after research by property portal Homesgofast revealed it was one of the most popular countries with buyers. I immediately retorted to say that just because a location is popular with buyers doesn’t mean it is a good location for a property investment, certainly doesn’t make it a hot-spot.

This was because I myself didn’t believe Dubai to be a property hotspot, and at the time I put its popularity down to the amount of people primarily buying a holiday home, with rental yields and capital appreciation of secondary importance. For the number of people who have bought in Dubai I hope I was right.

Far from being a property hot-spot, according to research by Arab investment banking firm and respected market analysts EFG-Hermes, due to the boom Dubai is currently experiencing the volume of new units coming onto the market in such a short space of time will shortly cause Dubai property prices to plummet.

EFG’s predictions use Singapore as a model, because Singapore experienced a similar boom, and the market being flooded with new property caused prices to crash. EFG’s report said: “We believe the supply-demand forces of Singapore of 2000 to be similar to those of Dubai now.”

Prices fell by 30% in a short space of time during Singapore’s crash, and EFG believe a similar drop is likely in Dubai. However, if new properties are delayed as expected the drop may only be 25%. EFG also believe the oversupply of new units will eventually cause rental yields to drop. Fortunately there is still one thing that may avert this property investment disaster. If Dubai’s population growth rate stays at 5% the demand may meet the supply, but if it, as expected drops to a more reasonable 3% then the above scenario will play out.

It is a great shame for Dubai, as the country has been so excellently successful at attracting investors from around the world, with developments selling out in a matter of weeks, one selling out in just two days. Initiatives like Dubai media city bringing relocation of big media companies such as MBC satellite broadcasters from London, Dubai Internet City bringing in big hitters like Lexmark and Intel, and tax incentives (well, the lack of tax) attracting wealthy investors from other oil-rich Middle East states. Of course the thousands of casual investors who bought a holiday home with investment in mind will be worst affected if things go bad.

Moscow — The Silent Real Estate Boom

Although you rarely hear about it on the international property investment scene, Moscow is currently experiencing a real estate boom of phenomenal proportions. According to Knight Frank apartments are now going for over $19,093 in prime Moscow districts. Between January and December 2006 new apartment prices rose an incredible 92.2%, and re-sales a staggering 69.4%. A small 60 square metre apartment in central Moscow is now worth over $1million dollars, and $40,000 dollars per square metre is not unheard of. The average price of Moscow property is $16,446 per square metre

As Moscow prices have risen so rapidly they have left rental rates lacking behind which has brought about a drop in rental yields in Moscow, to an unspectacular 5.18%. In St Petersburg however, though prices have risen just as rapidly to an average $3,490 per square rental rates have kept up with the rises and in fact yields have actually risen from 7.1% – 9.6%. Rental income is taxed at a flat rate of 30% for non-residents.

It is because Russian prices have gotten so high that you never hear Russia mentioned as a good place to invest. While their is perhaps still room for growth, and while it is likely that growth will take place, there is also a lot of uncertainty over the political situation in Russia, will Putin ever relinquish power, or at least hold an election, or will Russia once again become a totalitarian state (if it isn’t already), as well as that there is the bad relations with the U.S., which would become a lot worse if Putin goes down the totalitarian route. This would likely bring about a sharp downturn in the economy. Another downside is the high Capital Gains Tax, at a flat rate of 30% for non-residents.

As it is now you could compare the boom Moscow has seen to that experienced in London and many places around the U.K. And just as the rising numbers of UK buyers have been forced to look abroad to get on to the property ladder, Russian’s too are also increasingly looking into overseas property, favouring places like Ukraine, Thailand, Goa, Malaysia and Canada.