So is this the year for the UK-based investor to up the ante on property buying?

2010 could be the year of: the double dip for UK house prices, the unknown consequences of the cessation of Quantitative Easing, and the time the public sector gets trimmed down and brought in line with the private sector, with consequent loss of jobs.

Globally economic activity is forecast to have contracted by 3.8 percent in 2009 before growing by 0.6 percent in 2010, according to the IMF.

But let’s bear in mind that most expert forecasters don’t always get it right, as an interesting article in the Sunday Times, I have just been reading points out. That and given we have witnessed the biggest annual slide in the economy since the 1930s, which few “experts” predicted, we have all become a bit wary of forecasters and their predictions.…..

With some of the major economies around the world struggling to shake off the recession, investors might be wondering where to find an attractive overseas property market, or whether such a thing still exists at all. So which are the European and Mediterranean countries to invest in the New Year?

So is this the time for investing in property?

Like any other investment, putting your money into property involves a balance between risk and reward and we have certainly seen property prices overseas coming down in many countries and areas. But as we know, not all countries have been affected to the same degree or all the areas within a country.

Let’s have a bit of context first.

In the euro area, macroeconomic policies are providing support, but much of the adjustment in the labor market still lies ahead. Potentially rising unemployment will weigh on consumption and activity. Greece, Ireland and Spain and are in for a hard time to turn their economies round, but Germany seems to be leading the recovery in Euroland, albeit a fragile one, so caution is required.

The International Monetary Fund (IMF) compared house prices in the first quarter of 2009 vs the previous year in 52 rich and emerging housing markets. It found a median house-price decline of 7%. This gives a feel of how substantive falls in some markets have been. The US has been close to this average, but the declines in some countries have been more severe. Latvia, for example, suffered economic downturn, propped up by emergency IMF funding, and witnessed an annual decline in house prices of nearly 60% to the end of the first quarter 2009. During that period Estonia and the United Arab Emirates also saw collapses of nearly 40%. In Britain they fell around 20%.

However as I have mentioned before in a previous article. There is a danger in taking averages at face value as there are so many deviations from the mid-point. But what they can usefully do, is serve as a guiding benchmark

So let’s now turn to some specifics.

Poland

As Poland gears up for the UEFA football championship in 2012, investors looking to build a balanced portfolio of property investment can capitalize on the growth of the country.

Poland has managed to avoid recession, it was the only EU member state out of the 27 nations, to post positive growth in 2009. Poland achieved positive economic growth in the second quarter of 2009, with Gross Domestic Product (GDP) rising to 1.4% year-on-year in quarter two.

It was the largest of the new member states to join the EU in 2004, with a population of 38 million and a workforce of nearly 17 million, which is highly educated.

As such it has become a serious alternative to outsourcing skilled labour, competing with the likes of India, for the more affluent countries of the Western world. It has also attracted major blue chip firms to invest there including the likes of: P&G-Gillette, Microsoft, Dell, Ikea, Siemens Bosch, Coca Cola, Daewoo, Unilever, who are attracted by its stable economy, its, relatively-speaking, lower standard of living and geographically important location, as a major distribution point at the heart of Europe.

It therefore enjoys significant inward investment.

In addition, it has received substantial EU funding to invest in the infrastructure of the country, building a major network of roads, linking Northern Poland with the South via the A1 (Gdansk to Katowice, towards Vienna) and East with West via the A2 (linking Berlin, via Posnan to Moscow, via Warsaw). Major high-speed rail networks are also being built and creating desirable commuter cities outside of the capital city, Warsaw, such as Łodź

Poland is predicted to grow by 2-3% in 2010 (IMF, lower forecast, BZWBK higher forecast)

Where is demand coming from for properties there?

As the Polish people have become wealthier, they have been able to afford to buy their own homes. Poland is mainly an investment property market, not a purely seasonal property market, like so many holiday destinations. Admittedly it has a huge number of tourist attractions with the likes of Krakow, a well-established popular weekend-break destination, but it is also very attractive as a place to do business.

In the past English and Irish investors have bought in Poland, but in the latter part of 2009, the demand seems to have been driven more by the Polish.

The past buoyant economy and significant inward investment, has helped drive the property market. This fact, linked with a shortage of good housing stock and the fact that more people are now able to afford to buy their own homes, have combined to sustain and push up Polish property prices. This provides reassurance of a stable secondary market, providing exit strategies for investors..

The financial system has always been conservative. Precisely because of this conservative approach to lending, the banks did not face the same challenges as the US, or some other European banks. The mortgage market is comparatively new in Poland and mortgage debt represents under 10% of GDP (in the UK it represents 83% of GDP). Poor debtors only account for 1% of mortgages in Poland, compared with the US where it is between 15-20%. Polish banks have not got involved with off-book financial instruments in the same way that Western banks have.

Poland is not the perfect picture. Poland has challenges with unemployment and the budget deficit, but it has shown the rest of Europe how steady growth, attracting inward investment and conservative lending, have helped its economy in times of strife. It contrasts with the boom and bust of some other economies and property markets.

Morocco

Easily accessible from the UK, the kingdom of Morocco is matching investors’ expectations with a steady economy and healthy property market.

Over the last five years, a programme of government-led reforms has strengthened the country’s economic position and allowed it to sail through the global financial crisis relatively unscathed.  The government’s strategy is to steer the economy away from its dependence on agriculture to create jobs and find new engines of growth.  Investment in infrastructure, real estate and tourism has diversified the economy, while policies to control prices have restricted inflation.  Foreign direct investment has escalated, encouraging Moroccans to buy into their own market – an estimated 80 per cent of remittances from expatriate Moroccan workers now goes into property.

The country is politically stable, the financial system is comparatively robust and businessmen are optimistic about the regulatory structure.  In the midst of 2008’s financial crisis, even the World Bank complimented ‘the very great resilience of the Moroccan economy in the context of international turmoil.’

For overseas property investors, this means attractive conditions combined with a wide range of inviting investment opportunities, thanks to the Moroccan government’s development programme.  For British buyers, there’s the added advantage of a favourable exchange rate into Moroccan Dirhams, giving sterling real buying power.

Spain

Although most other European Union countries climbed out of recession in the 3rd quarter, Spain’s economy shrank, for the 6th quarter in a row. Yet a 0.3% drop in GDP was barely as big as Britain’s.

However the rest of the EU buys 2/3s of Spanish exports. The economy may be buoyed by the recovery in France and Germany for a while. But the building industry will put a damper on recovery.

So have house prices fallen sufficiently and are now on the rebound?

Price falls are difficult to pinpoint because of the way the property market works in Spain, but there have been falls of up to 50% since the 2007 peak, in some areas and it may be where properties have been priced unrealistically to begin with. Official statistics from the Ministry for Housing show National average prices have fallen 8% over 12 months, from €1,780 m2 to €1,634.7 m2 today (Sep ’09 vs ’08).

So what about housing stock levels?

Madrid-based real estate consultants Acuña & Asociados, report that around 1.6 million apartments and houses are on the market, (over 300,000 under construction and a further 1.1 million with planning permission that must legally be built within two years). This swamps annual demand of 218,000 units and at current levels of demand it could take until 2016 for the property market to recover.

Estimates on the profile of these properties, that is how many are holiday homes as opposed to resident worker homes, vary, but as much 50% of the total of unsold stock, could account for the holiday home market.

So what is the outlook for Spain?

Buying into Spain now, while prices are keen, is surely attractive for many who may have found Spanish prices unaffordable in the past. This assumes finance is available to those wishing to do so. Whilst the economic outlook is still uncertain, it remains a favourite among buyers because of its climate, lifestyle and beauty. It is a great time to be getting into the market if a medium to long term outlook is taken.

And whilst property price declines have been more accentuated on the coast, inland prices have held up. So if you are feeling uncertain about the prospects and not sure whether more price falls are likely, an option would be to look inland more, where prices and values have held up more and are likely to be less volatile in the future.

Bulgaria

Here the Tale is similar to Spain. Coastal & ski resorts have plenty of supply, however off the beaten track a bit, slightly away from the heavily-promoted tourist destinations there are locations with more year round attraction, like Sozopol, the oldest Black Sea settlement, (just over 30km south of Burgas) famous, for its architecture and 2 major beaches.

After impressive growth between 2005 and 2007, the property market started to level off at the end of 2008 and fall in 2009. GDP growth in Bulgaria is expected to slow in the next year.

New buildings and sales of flats have been affected by the financial limitations imposed by banks. Lower loan to values are being offered, which has affected demand and most of the buyers came from the countries hardest hit by the crisis, such as the UK and Ireland.

In the past many British saw it as a cheaper alternative to buying in markets like Spain and for some it meant they didn’t need to get a mortgage either. However, some of the undiscerning investment purchases have not always delivered on expected returns and buyers are being more careful.

Montenegro

The Montenegrin economy has achieved impressive results over the past several years. Ambitious reforms, substantial capital inflows, dynamic developments in the banking sector, positioned Montenegro as one of the fastest growing European countries. Average annual GDP growth in the last four years was around 8 percent. However, Montenegro, a small, open economy, is not immune to global economic developments.

Montenegro fell into recession in the first half of 2009 when the economy shrank by 3.5%. Badly affected by the global economic crisis, the end of the global property boom and the lack of liquidity in the banking sector.

The global economic crisis has also affected the two largest exporters in the country, KAP (Aluminum smelter, Russian-owned KAP, is the country’s largest exporter, with 40 % of industrial production) and Nikšićka Željezara (Steel mill).

The Prime Minister, Djukanovic believes Montenegro will enter the European Union by 2014 amid signs the EU is overcoming expansion fatigue after 2004 integration of Eastern European countries

The outlook is optimistic for 2010. Ongoing efforts at greater integration with EU institutions will play a key role in sustaining reform momentum through to 2014, which should increase the attractiveness of this economy as a destination for foreign direct investment going forward.

Although Montenegro continues to make progress in its efforts at greater integration with Western

political and economic institutions, challenges remain to meet membership criteria.

So, the recent decision by the EU to commence an evaluation of Montenegro's readiness to become an official candidate country is positive.

The Government has ambitions for number of government tenders in forthcoming months, including tender for the development of Montenegro’s longest beach in Ulcinj, hoping one or two big deals could bring in billions of Euros in the years ahead.

With more than a million visitors a year, tourism revenues account for a quarter of GDP. But tourist numbers declined in summer 2009 amid a collapse of the Russian economy, which for long represented a key Montenegrin target market. Direct flights from Moscow enticed hundreds of Russians to buy weekend houses along the coast, dramatically driving up property prices during 2007 and mid-2008, but this is no longer the case.

Cyprus

Cyprus has weathered the worldwide economic recession considerably better than Europe, despite some recent sluggishness. But this may be in part because the economy is driven by foreign demand and tends to react with a lag to developments in the rest of the EU.

Reunification?

The president of the Republic has been in talks with the leader of the Turkish Cypriot community over the past year and the negotiations seem to be at a critical point. There is the prospect that the political problems of the island might be solved, although this will not happen overnight.

Economic and monetary union can enhance this process. Since Cyprus is part of the euro area, the euro is likely to be the common currency of the unified Cyprus as soon as a peaceful solution is negotiated. The rules of the economic and monetary union within the euro area must be adhered to and can serve as a catalyst for progress.

The Greek Cypriot government is pushing ahead with its plans to upgrade tourism facilities in the southern part of the island.  The centrepiece of this project is a plan to build four marinas at leading resorts, the most ambitious involving the construction of an artificial island off Limassol which will be “more impressive than what has been constructed by Dubai,” according to the Minister of Commerce.  It will have a 1,000 yacht capacity. The other marinas will be at Coral Bay near Paphos, at Ayia Napa and Larnaca, and the plans also include restaurants, shops and residential properties.

While the first marina is scheduled for completion in 2011, the Cyprus property market remains reasonably robust.  Although growth – unsurprisingly – slowed in 2008, the market is broadly-based and therefore well-placed to cope with the global economic crisis.  There is a healthy domestic property market and, while Western Europeans may be thinking twice about overseas property investment, an influx of buyers from other countries such as Kazakhstan and Russia means that the Cypriot property market has not been hit as hard as some others.

Origionally posted here - http://www.property-venture.com/news-articles/related-news/2010-top-property-markets.html