Strong demand for foreign property despite credit crunch

22 July 2008 / by Daniela Gieseler
With UK house prices soaring, the last decade has seen many property buyers focus on foreign markets, a trend which is likely to continue despite the current economic conditions according to research from Savills and www.holiday-rentals.com reported by the Daily Telegraph.

The impact of the credit crunch on the British housing market has raised concerns that foreign property might be the next victim, as new buyers will be hit by both tighter mortgage lending conditions and rising fuel costs.

Whilst traditionally, Brits were into buying property abroad for themselves, favouring countries such as Spain, France and Italy, in recent years a second category of buyers has emerged seeking to generate revenue by investing in property in countries with rapid growth.

These buyers are usually younger and not afraid to invest in new-builds in new locations such as Bulgaria, Morocco or Turkey or city hot spots like Prague or Dubrovnik. They buy their property with the intention to rent it out and make as much money as possible before they sell it on.

However, these investment buyers are often not affluent and have taken out large mortgages, some over 90 per cent of the property's value. They are therefore heavily reliant on the income they generate by letting the property out.

Although the research suggests that the investment market has diminished slightly, Savills believe that the demand for foreign property will change, but not collapse entirely.

Savills researcher Jacqui Daly told the Telegraph: "We will see a return to the traditional use of the holiday home as a lifestyle choice, and that demand will actually rise in the near future.

"Our survey showed that 18 per cent of people are buying for their retirement," she revealed. "There are vast numbers of over-50s and over-60s wanting homes overseas, often in traditional areas such as Spain.

"Demographics show there are many more of these to come. They have a lot of equity in UK homes, so most won't need to borrow at all."

Also, the increase in fuel prices has not had a huge impact on foreign property owners so far. Only one in ten respondents in the survey said their considered selling their property or buying a new one nearer the UK if "green taxes" were to increase the cost of their holiday.

Greg Grant, managing director of holiday-rentals.com, believes that owners of foreign properties will not lose out, although he expects many owners to change their approach to letting their properties.

Mr Grant told the Telegraph: "Those who have previously kept their homes to themselves may begin renting out to maximise income in these tighter times. They'll see that a month's rental can, if timed well, pay for much of a year's running costs on a home."

"Renting does not suffer during a downturn," he pointed out. "We expected to see falls in bookings but so far we've seen no reduction in website traffic from people wanting holidays. Families, in particular, may desert hotels and save money by renting a home."

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