Buying Property for Investment

Whilst many still have useful disposable income, recent reports highlighting the risks associated with over reliance on pension plans, the volatility of the stock market and other traditional savings schemes have encouraged people to consider alternative methods of realising returns on investment including longer term financial planning initiatives.

Investing in “traditional bricks and mortar” has always been and will continue to be a safe and popular option. Indeed property purchase has been referred to as the “new pension plan.”

Surveys carried out amongst UK Property Investors (2004 ) indicate 55% of respondents believe investing in overseas property presents a greater opportunity when compared to investing in the UK residential market; 22% of investors plan to buy an overseas property within the next 12 months. The main reasons given were rental income and potential for capital growth, a warmer, healthier climate and better standard of living. 20% planned to buy overseas and later retire with access to golf and beach playing an important role in such decision.

The first 6 months of 2004 saw house prices in Spain increase by a national average of 17% (Financial Times, Spain Report 2004). Spanish property prices are estimated to continue increasing at an average of 12% per annum with some areas achieving capital growth closer to 20%.

52 million tourists visited Spain in 2003 thereby allowing the Country to overtake the U.S.A as the second most popular tourist destination in the world. With 60% of tourists opting to stay in privately owned homes, the rental market is at its strongest. (Spanish Secretary of State 29.01.04).

What makes a good Investment Property?

Location, Location, Location!.............Yes, that now familiar expression also applies abroad! Make sure your investment offers easy access to a pool or beach, golf courses, restaurants, shops, transport and a full range of amenities.

Off Plan

Buying “off plan” in the early stage of release is likely to afford an excellent return on investment.

The property is priced well below its eventual market value – essentially, it is discounted.

Your property rises in value as a result of such discount agreed upon the initial release of the Development. During construction, the Developer raises the prices so that they eventually reflect their true market value.

Equity is limited to around 30 – 40% of the purchase price yet your gain is on the full market value.

In Spain, many Developers will permit the sale of a property prior to completion, thereby enabling you to profit from pre-scheduled price increases and additional market growth.

Example of a typical gain in many parts of Spain:

NB: This example does not take into account any additional overall growth in the property market.

When purchasing “off plan”, it is sometimes possible to subscribe to a “rental guarantee scheme”.

Rental guarantee programmes are excellent alternatives for the cautious investor seeking a medium to long term return on investment.

In the early stages of the release of a Project, the Management Company will agree a fixed return over a 1, 3 and sometimes 5 year period. To facilitate the letting of the property, the price often includes a furniture pack. Rental returns are typically between 5 – 8% thereby offering peace of mind plus the added bonus of significant, ongoing capital appreciation.
a percentage of the purchase price.

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