The British "Jet-to-Let" Set
FEBRUARY 15, 2006
EYE ON EUROPE
By Kerry Capell
When Katryn Mercer sold her first home in Britain three years ago, she pocketed a tidy profit. Nonetheless, Mercer found herself priced out of her hometown of Loughborough in the East Midlands. "I couldn't afford to buy a bigger property here," she says. So the 32-year-old project manager for a construction company decided to rent in Britain and buy in France. Mercer snapped up a one-bedroom apartment in the ski resort of Tignes for $148,000, which she rents out during the ski season to cover her mortgage costs.
Owning property abroad used to be the exclusive preserve of an older, wealthier generation in search of second homes in sunnier climes. But today a growing number of younger Brits are shunning pricey property at home and buying cheaper homes overseas to rent out for a profit. Many, like Mercer, are the beneficiaries of Britain's real estate boom, with more than a decade of annual double-digit increases in housing prices. British TV is replete with shows showcasing British buyers who have made a mint by buying abroad.
EMERGING MARKETS. This new breed of investors are part of an emerging trend dubbed "jet-to-let." Thanks to the proliferation of such low-cost carriers as Ryanair (RYAAY ) and easyJet (EJETF ), the British can now hop the channel for as little as $30 round-trip. Today, an estimated 550,000 Brits own a home overseas, a threefold increase over the past decade. According to the Office for National Statistics, the total value of those homes now exceeds $40 billion. And recent research from British bank Barclays predicts the number of British owning property abroad will double within the next few years.
It's easy to see why. Buying in Britain is incredibly expensive. The median home costs $324,000, a figure that rises to a hefty $470,000 in London, according to government research. At the same time, the British property boom is finally showing signs of a slowdown, making it a lot tougher to earn the big returns to which Brits have become accustomed. Economists expect that annual growth in housing prices will slow to a modest 4% this year and next.
France, Spain and Italy have long been among the preferred destinations for Brits looking for a weekend or retirement home. But many now are looking further afield at more exotic and less developed markets such as Eastern Europe, where the potential for appreciation is much greater. "There's a lot of opportunity, especially in emerging markets where if buyers get in early, property can be a good long-term investment," says Suzanne Clay, European business development manager at Barclays.
POUND FOR POUND. Going forward, the trend will be driven by younger buyers. A survey by Internet polling outfit YouGov for the Portuguese property developer Oceanico Development found that nearly half of the 4,000 18- to 29-year-olds polled were planning to buy a property abroad to rent out. And for two-thirds of these young property investors, it will be their first real estate purchase.
"As property prices in Britain remain prohibitively high and the rental market approaches saturation, it's only natural that first-time buyers look abroad, where their pound travels further," says Oceanico Developments Director Simon Burgess. Property companies in Europe report an increasing number of inquiries from first-time buyers, many of whom are unable to qualify for a mortgage in Britain.
Simon Conn, managing director of Conti Financial Service, an international mortgage company in Hove, says his firm has witnessed a huge increase in interest in buying abroad from first-time buyers. "People have seen their parents do very well out of property here in Britain," he says. "And they are frustrated they can't get on the ladder here, so they buy overseas as a first step."
Graham Tennant, director of International Mortgage Solutions, a lender specializing in Spanish mortgages for British buyers, says he recalls one couple in their early 20s who did just that. With a combined income of $54,000, they were priced out of the market at home. So they bought a one-bedroom apartment on Spain's Costa Blanca for $179,000, substantially less than they would have paid for a comparable property in Britain.
EASTERN UNION. For the best deals, many real estate experts are directing their clients to Eastern Europe, where recent or imminent membership in the European Union is expected to boost economic growth. Take Bulgaria, which is to join the EU in 2007. Property prices there rose more than 36% in 2005 and are expected to keep climbing by 25% a year in the lead-up to accession.
William Glaros, manager of Bulgarian Home Loans, a British property finance outfit, says investors can snag a one-bedroom apartment in popular beach or ski resorts for less than $60,000, with rental yields often exceeding 12%. For the more adventurous, homes outside the touristy areas in Bulgaria can be had for around $18,000, although there's less rental or resale demand.
Slovakia is another hot spot. Since joining the EU in 2004, its growing economy has kick-started a boom in property prices. It has an investor-friendly tax regime, with a 19% flat rate of tax. And any profit made on resale, provided you hang on to the property for at least two years, is tax-free. Rental yields, at 7% to 8%, are high, and a shortage of new homes (coupled with strong demand) is driving up prices. Annual growth of 15% to 20% is expected over the next three years.
BOOM AND BUST? Still, property experts caution that while these investments are potentially high reward, they are also high risk. "Many of these countries don't yet have good resale markets," says Stuart Law, of property investment advisers Assetz in London.
Locals cannot afford many of these properties, so anyone looking for a quick exit may find it hard to get out. Indeed, the speculative aspect of the whole jet-to-let boom reminds Law of the dot-com boom. "There are people who are buying in places they can't even locate on a map," he says. That may well be, but the mania shows no signs of letting up.
EYE ON EUROPE
By Kerry Capell
The British "Jet-to-Let" Set |
With prices at home prohibitively high, even first-time real estate buyers are looking abroad for investment opportunities on the Continent |
Owning property abroad used to be the exclusive preserve of an older, wealthier generation in search of second homes in sunnier climes. But today a growing number of younger Brits are shunning pricey property at home and buying cheaper homes overseas to rent out for a profit. Many, like Mercer, are the beneficiaries of Britain's real estate boom, with more than a decade of annual double-digit increases in housing prices. British TV is replete with shows showcasing British buyers who have made a mint by buying abroad.
EMERGING MARKETS. This new breed of investors are part of an emerging trend dubbed "jet-to-let." Thanks to the proliferation of such low-cost carriers as Ryanair (RYAAY ) and easyJet (EJETF ), the British can now hop the channel for as little as $30 round-trip. Today, an estimated 550,000 Brits own a home overseas, a threefold increase over the past decade. According to the Office for National Statistics, the total value of those homes now exceeds $40 billion. And recent research from British bank Barclays predicts the number of British owning property abroad will double within the next few years.
It's easy to see why. Buying in Britain is incredibly expensive. The median home costs $324,000, a figure that rises to a hefty $470,000 in London, according to government research. At the same time, the British property boom is finally showing signs of a slowdown, making it a lot tougher to earn the big returns to which Brits have become accustomed. Economists expect that annual growth in housing prices will slow to a modest 4% this year and next.
France, Spain and Italy have long been among the preferred destinations for Brits looking for a weekend or retirement home. But many now are looking further afield at more exotic and less developed markets such as Eastern Europe, where the potential for appreciation is much greater. "There's a lot of opportunity, especially in emerging markets where if buyers get in early, property can be a good long-term investment," says Suzanne Clay, European business development manager at Barclays.
POUND FOR POUND. Going forward, the trend will be driven by younger buyers. A survey by Internet polling outfit YouGov for the Portuguese property developer Oceanico Development found that nearly half of the 4,000 18- to 29-year-olds polled were planning to buy a property abroad to rent out. And for two-thirds of these young property investors, it will be their first real estate purchase.
"As property prices in Britain remain prohibitively high and the rental market approaches saturation, it's only natural that first-time buyers look abroad, where their pound travels further," says Oceanico Developments Director Simon Burgess. Property companies in Europe report an increasing number of inquiries from first-time buyers, many of whom are unable to qualify for a mortgage in Britain.
Simon Conn, managing director of Conti Financial Service, an international mortgage company in Hove, says his firm has witnessed a huge increase in interest in buying abroad from first-time buyers. "People have seen their parents do very well out of property here in Britain," he says. "And they are frustrated they can't get on the ladder here, so they buy overseas as a first step."
Graham Tennant, director of International Mortgage Solutions, a lender specializing in Spanish mortgages for British buyers, says he recalls one couple in their early 20s who did just that. With a combined income of $54,000, they were priced out of the market at home. So they bought a one-bedroom apartment on Spain's Costa Blanca for $179,000, substantially less than they would have paid for a comparable property in Britain.
EASTERN UNION. For the best deals, many real estate experts are directing their clients to Eastern Europe, where recent or imminent membership in the European Union is expected to boost economic growth. Take Bulgaria, which is to join the EU in 2007. Property prices there rose more than 36% in 2005 and are expected to keep climbing by 25% a year in the lead-up to accession.
William Glaros, manager of Bulgarian Home Loans, a British property finance outfit, says investors can snag a one-bedroom apartment in popular beach or ski resorts for less than $60,000, with rental yields often exceeding 12%. For the more adventurous, homes outside the touristy areas in Bulgaria can be had for around $18,000, although there's less rental or resale demand.
Slovakia is another hot spot. Since joining the EU in 2004, its growing economy has kick-started a boom in property prices. It has an investor-friendly tax regime, with a 19% flat rate of tax. And any profit made on resale, provided you hang on to the property for at least two years, is tax-free. Rental yields, at 7% to 8%, are high, and a shortage of new homes (coupled with strong demand) is driving up prices. Annual growth of 15% to 20% is expected over the next three years.
BOOM AND BUST? Still, property experts caution that while these investments are potentially high reward, they are also high risk. "Many of these countries don't yet have good resale markets," says Stuart Law, of property investment advisers Assetz in London.
Locals cannot afford many of these properties, so anyone looking for a quick exit may find it hard to get out. Indeed, the speculative aspect of the whole jet-to-let boom reminds Law of the dot-com boom. "There are people who are buying in places they can't even locate on a map," he says. That may well be, but the mania shows no signs of letting up.
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