Where to buy an undervalued property in 2016
Hindsight will only get you so far as an investor. In order to grow a portfolio of investments you need to display a little foresight. Being able to spot a property that is undervalued is a lucrative skill and the trick to being successful when dealing with bricks and mortar.
This is where it pays to broaden your horizons and look overseas. If you think prices in the UK are inflated, then you’re probably right. The Organisation for Economic Development (OECD) certainly seems to agree, with its latest index of house prices showing properties at home are seven per cent overpriced on average.
Stamp Duty is due to rise for buyers of second properties in the UK so it’s even more important to get the most for your investment by weighing up an overseas deal. So, where should you go and why?
The overvalued and undervalued property markets
The rest of the OECD figures are a good start in helping you to determine where is and isn’t ‘overvalued’. The body gives a score to each country based on house prices compared to earnings. A score of 100 means prices are on a par with earnings, while scores above this indicate they are overpriced and below 100 are undervalued.
Overpriced countries include – Austria 117, Estonia 117, Germany 116, New Zealand 114, Sweden 114.
Underpriced – Italy 87, Slovenia 86, Holland 83, Hungary 83, Spain 74.
Be careful of the figures
You might be tempted to think that those figures alone give you the answer to your property buying conundrum, yet it’s worth being cautious. These figures show where properties are overpriced, but relative to local income. That means they have got scope to grow – and for your investment to mature – but might also be a wider sign of a stagnating economy with depressed wages.
Consider too that the figures take no account of regional differences. In the UK we can clearly see that London and the South East has a very different property market outlook to parts of the North East, for example. Don’t be sucked into thinking the picture in Spain or Germany is uniform.
Finally, it’s important to remember that just because an area is ‘overpriced’ doesn’t mean its properties won’t continue to rise in value. In Stockholm, for example, demand outstrips supply in a city where planning is tightly controlled. Those homes in the Swedish capital aren’t, therefore, likely to drop too much in value any time soon.
Currency matters when it comes to overseas investments
The strength of the pound against the currency in your chosen destination matters a lot. Consider the Euro, for example. £500,000 now is worth about €150,000 more now (at roughly (1:1.3) than when the pound was at its lowest (1:1.02) against the Euro, giving you much greater spending power on the Continent. When you weigh that up against the ‘undervaluation’ the OECD highlighted in Spain, your Costa Del Sol villa looks a much sounder investment. However, the pound has, for example, tailed off against the Japanese Yen after a sustained period of growth. This suggests that now might not be the right time to dip into the Japanese market.
Careful research
It pays to use figures such as those produced by the OECD as a starting point. Back that up with in depth research of regional conditions and demand, currency rates and, of course, the types of homes to be found on Property Listings and you’ll have a more rounded picture of the location you’re investing in.
As a basic rule, there is value to be had in Spain and parts of southern and eastern Europe – with Italy another popular market where conditions are good. Central Europe – particularly Austria and Germany – New Zealand and the US are less likely to reap such rewards on the whole.