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USA best value for money for overseas property

24th September 2012 Print

UK overseas property buyers' money currently goes furthest in Orlando, USA, where a £125,000 budget can purchase a four-bedroom home with a large garden and a private pool, compared to a studio apartment in the Swiss Alps, according to the first annual HSBC Overseas Property Report.

Florida's property market has reached the bottom since the bubble burst in 2006, with prices just starting to rise again, enabling foreign buyers to obtain a relatively large home for their budget, which is boosted by a favourable exchange rate (1.57) and low level of purchase taxes and fees (5%).

The pound to euro exchange rate has increased the most over the past six months, largely as a result of the on-going Eurozone crisis. It is up 5.7%, giving buyers with a £125,000 budget €8,563 more to spend. This will particularly grant those looking in Cyprus and Portugal higher purchase power, as purchase taxes are comparatively low. Currently Costa Blanca, Spain, offers the most space for money in Europe.

James Yerkess, HSBC Head of FX, said: "There is a huge discrepancy in the size of property that UK buyers can purchase on the same budget in some of the most popular overseas locations for second homes. This is a combined result of foreign exchange rates, tax levels and the strength of the property market. Orlando, for example, offers excellent purchase power right now, but European destinations vary and aspiring buyers who are more flexible on location should weigh up their options to secure the most space and best facilities for their money."

Initial Purchase Costs

A £125,000 budget gives buyers in Switzerland £120,424 to spend on a property after tax (3.8%) and those in Orlando £119,048 (5% tax), while those in Italy will have only £110,619 to spend on the property after tax (13%).

A £400,000 budget will give Swiss property purchasers £385,356 to spend on the property and those in Orlando £380,952.

However, the Swiss Alps offer the poorest purchase power; £125,000 will only buy a one-bed studio apartment and £400,000 will only stretch to a three-bed chalet despite the relatively low purchase taxes and fees.

Costa Blanca offers most space for money in Europe. While taxes and fees amount to 10%, the property market experienced a fresh slump in 2012. £125,000 will buy a three-bed house with a shared pool.

Purchase taxes and fees are highest in Italy at approximately 13%, leaving only £110,619 of a £125,000 budget to spend on the property. However, Tuscany places seventh out of ten on the purchase power chart.

The pound gained the most against the euro in the six month period to August, increasing by 5.7% from 1.202 in March to 1.2705. This gave buyers with a £125,000 budget €8,563 more to spend.

The pound was strongest against the Turkish Lira in August at 2.8173, although it has fallen 0.03% over the last six months. A £400,000 sum equated to over 1.25 million Turkish Lira (TRY 126,920).

The pound to US dollar exchange rate fluctuated between 1.55 and 1.61 in the six months to August but the six monthly change was entirely flat at 0.00%.

Post Purchase Costs

Post-purchase costs are least expensive in Turkey and Cyprus, where there is no annual tax on property. Foreign home owners in Cyprus are also not subject to tax on rental income, while those in Turkey face a 15% charge.

Annual property tax is most expensive in Switzerland, where home owners face the highest yearly charge at 2.3% of property value.

Switzerland also has the highest tax on rental income for foreign owners at 49%, followed by the USA at 30%.

Tax on rental income for French property is set to rise. Foreign owners currently pay 20% tax on rental income, but President Hollande has confirmed that this will increase to 35.5%, giving France the second highest level of this tax, up from third lowest.

Travel (flights and car hire) is cheapest for those with a holiday home in Spain or the Balearics. Summer and winter return flights for a family of four and car hire for two two-week periods costs £1,186 for Costa del Sol compared to £4,464 for Orlando.

James Yerkess, HSBC Head of FX, said:

Great British pound (GBP) - Euro (EUR)

"It has been a difficult six months for the euro, enabling the pound to gain ground despite the UK's own economic woes. Currency markets became increasingly nervous about the euro's life expectancy as the Greek general election in May revealed opposition to the bailout programme and associated tax hikes and government spending cuts and the threat of a Greek exit loomed large. As the mood on Greece improved, fears regarding Spain intensified, centred on its weakened banking system in the wake of a burst property bubble and on-going recession. Policymakers responded to stabilise the situation, but with less haste and aggression than the market would have liked."

GBP - US dollar (USD)

"Sterling and the US dollar have enjoyed a relatively stable relationship since March - in part because both could capitalise on the nervousness regarding the euro. However both currencies also suffered from economic weakness, with the UK in particular slipping back into recession. Despite this, the pound received some indirect support as a safe haven, with the government's commitment to tighten finances attracting investors into the UK bond market. This helped the pound to keep pace with the more traditional safe haven of the US dollar, which now has markets increasingly weary, especially as the US elections approach."

GBP - Swiss franc (CHF)

"The performance of the Swiss franc compared to the British pound has simply been an echo of the pound's movement against the euro. In September 2011, the Swiss central bank decided to put a floor under the euro-Swiss franc exchange rate of 1.20 to prevent what it saw as excessive strength in the Swiss currency. Given the abundant international appetite for holding the Swiss franc, sustaining this floor has required the central bank to sell Swiss francs to prevent it rising in value, buying substantial amounts foreign currency instead - a policy that has been successful."

GBP - Turkish lira (TRY)

"It has been a game of two halves for sterling against the Turkish lira over the past six months. The Turkish lira initially fell against sterling, as it suffered in a global environment of risk aversion. However, the lira enjoyed the advantage of high interest rates, which offered higher returns to savers. More recently, Turkey's stronger economic data has helped the Turkish lira to recover somewhat and attitudes towards emerging market currencies have improved as investors see them as an attractive diversification choice amid growing nervousness regarding the euro and US dollar."