With Brexit (still) on the cards, many investors may be in two minds about European property.
On the one hand, all the fundamental attractions of the various internal markets are still very much in evidence, plus, in some cases, owning property in a country may help smooth the path to residency and, if desired, citizenship.
On the other hand, many European markets have some of the highest property prices in the world, which raises the question of whether or not they are justified.
Europe is really a collection of micro-markets
Saying “European property” is a bit like saying “food”, everybody understands what it means and it is accurate, but it covers a massive range of different options.
For example, many European capital cities have high prices and low growth in most areas (although there are often bargains to be had for those who look hard enough for them) whereas, by contrast, emerging localities can still be relatively affordable and have good prospects for capital appreciation.
This means that often the question is less whether or not European property is still a good investment but which specific localities in Europe match an investor’s unique goals.
The inflation question
Nobody can ever guarantee anything; however, on the whole European governments have a fairly good track record of managing inflation and keeping it in the range of 1% to 2%. This is the sort of level which means that economies are trundling steadily forward, which, frankly, is what you would both expect and hope to see from a mature market like the EU (taken as a whole) and most of the member states individually.
Obviously, there’s going to be some degree of regional variation, but, all the signs say that there is unlikely to be either rampant inflation or rampant deflation. In other words, if you’re looking for a fairly safe, “steady as she goes” type of market, then Europe has plenty of options for you.
The interest-rates question
The issue of interest rates could be an interesting one. Post-Brexit, UK-based property investors could find themselves exposed to higher interest rates for one of three reasons.
The first reason is that UK-based lenders raise interest rates in line with the Bank of England, which might need to put them up to curb inflation.
The other is that EU-based lenders may put up the interest rates they offer to UK-based investors as they will cease to be EU citizens.
The third is that interest rates in the EU increase because the EU needs to curb inflation.
The first two considerations really do not reflect in any way on the strength of the European property market, they will just be a fact of life with which UK-based investors will (potentially) have to deal with.
The third is highly unlikely given that the EU is not known for rampant inflation, however, if it does happen, then it is to be assumed that asset prices will also rise, which could give investors the option to remortgage at a lower loan-to-vehicle ratio and hence counterbalance the impact of higher interest rates.
For more information on buy-to-let property investment, please contact Indlu.
*Mark Burns is the director of Indlu