After a long break, Russian investors once again began to be actively interested in foreign real estate, according to a Knight Frank study. Why buy an apartment abroad and how to do it correctly.
For ten months of 2017, the number of requests for the purchase of overseas property for the purpose of investment by Russians has doubled compared with the same period last year, according to a study by consulting company Knight Frank.
According to the international broker Tranio, in the first half of this year, the volume of operations of Russian citizens with overseas property grew by 34% in annual terms - up to $ 526 million. However, this is still 45% lower than the pre-crisis figure of 2014 ($ 957 million in the first half) , the representative of Tranio, referring to the statistics of the Bank of Russia.
Knight Frank clarifies that approximately 30% of applications for investments received by the company in the first half of 2017 concerned residential real estate, 40% were commercial and another 30% were co-investment.
“Investors have become more active. They are ready to participate in development, are ready for quick transactions (in a country they know) only on the basis of financial indicators - without viewing the object, they are ready to diversify the portfolio, ”says Marina Shalaeva, director of foreign real estate at Knight Frank.
Experts Knight Frank associate the growing interest of Russians in real estate abroad with the desire to earn income in foreign currency and develop business in foreign jurisdictions.
The number of countries - leaders of investment preferences of Russians include Germany, Italy, Cyprus, Switzerland / Austria and the United Kingdom. At the same time, Knight Frank notes that, compared to last year, the UK fell two places in this ranking - the unstable political situation forced investors to take a wait-and-see position. A new wave of interest in real estate in this country Knight Frank expects in the spring of 2018.
The number of requests for the purchase of real estate in the United States also decreased - a decline of 40% year-on-year due to the deterioration of relations between Moscow and Washington.
However, whatever the real estate market is chosen by the investor, he will have to invest in a specific asset with certain risks. What needs to be done so that the investment in a foreign meter justifies itself and brings the buyer maximum benefits?
1. To decide on the purpose of investing
Depending on the goals of the investor, the attractiveness of countries and objects may vary significantly.For life and recreation, it is important to choose the object that most corresponds to the preferences and plans of the investor for the future. In the top of the Russians resort destinations for regular trips to the sea, as well as the cities with which their business life is connected. When buying, it is important to take into account additional bonuses that property ownership in a particular jurisdiction can bring to the investor.
For example, Tranio notes a growing interest in Greece due to the comfortable level of housing prices - in this country they are several times lower than in most European capitals. In addition, the amount of investment in Greek real estate from € 250 thousand already gives the right to apply for a European residence permit.
Among people who are looking for real estate for living, homes in Spain, Bulgaria and the Czech Republic are popular, sharing observations in the Home Real Estate.
"Much depends on the proximity to the sea and the condition of the apartment, but in general the Spanish cottage in the seaside city will cost € 50-200 thousand, an apartment in one of the popular Bulgarian resorts - € 40-120 thousand. In Prague, the price range for liquid one-bedroom apartments - € 77-230 thousand depending on the area and the state of housing,” explains Daria Ganieva, PR manager of Home Real Estate.
For long-term investments in order to preserve savings, stable markets are more suitable, where prices fluctuate slightly.
“These conditions correspond to apartments in European capitals, especially when it comes to “classic” cities - Vienna, Berlin, Paris, London. The investment attractiveness of the Scandinavian capitals - Stockholm, Helsinki, Copenhagen, Oslo. To a lesser extent attractive, but also reliable in terms of investing in Bucharest and Budapest,” says Dmitry Apryatkin, an analyst of the real estate market.
According to the expert, the price range for liquid real estate in "classic" cities and northern capitals is € 2-6 thousand per sq. M. meter. In Bucharest and Budapest, investment apartments can cost up to 50% cheaper.
“Investments in facilities of countries with a high level of legal protection and economic stability — Germany, Austria, Switzerland, and the UK — guarantee a yield of at least 6-7% per annum in both the short and long term. If we talk about the minimum threshold for investment in real estate in these countries, it is € 200-250 thousand, ”adds the assistant professor of economic theory at the Russian University of Economics. G. V. Plekhanova Irina Komarova.
In order to increase savings, it is important to choose markets with high growth potential, but maintaining price affordability. Experts recommend in this case to abstract as much as possible from emotions and rely solely on analytics.
“The most informative sources of changes in real estate value by countries and cities are ratings of consulting company Knight Frank, analytical materials from Colliers International, as well as reports from American investment company JLL and real estate consultant Cushman & Wakefield. Almost all the reports of these companies are free and you can get access to them in two minutes,” commented QBF analyst Alexander Zhdanov.
In addition, the investment bank UBS publishes the Global Real Estate Bubble Index every year. The purpose of this study is to find out whether it is possible to call the rapid rise in real estate prices in a particular city logical or it is speculative.
Grigory Selishchev, an independent financial adviser (IFA), senior partner of the international consulting company Anderida Financial Group, recommends caution when buying apartments in Toronto, Vancouver and British Columbia in Canada, Stockholm in Sweden, Munich in Germany. "These cities and provinces are more at risk of bubble formation - the rise in prices in them has exceeded 50% since 2011, overtaking economic growth and inflation," Selishchev warns.
According to Danila Savchenko, director general of the international real estate agency Evans, a high yield of 9% per annum and higher is possible with more risky investments, 3-8% with more reliable investments.
2. Evaluate investment attractiveness
Investments in real estate are considered long-term, so when buying a property, it is important to assess both the current state of the residential infrastructure and its predicted change.“We need to understand whether the city government is planning any new projects in the area. Real estate in the conditions of gentrification is the fastest growing price - this is the process by which industrial areas are transformed into prestigious residential properties, ”explains Marina Filichchkina, head of the Tranio sales department.
Currently, the most profitable investment in many western cities is the purchase of real estate under construction, commented on Home Real Estate.
“In a number of European cities a shortage of real estate has persisted for a long time - there are almost no frozen construction projects. The payment system is fundamentally different from the Russian one: here, some developers only have to invest only 15% of the amount first and then wait for the construction to finish, ”explains Daria Ganieva.
In Knight Frank they say that construction abroad is attracting more and more interest from the Russians: if in 2016 it accounted for only 10% of the total number of applications, now it is about 30%.
“It is safer to buy either new housing or housing no older than 10 years. Usually such objects are available to developers, not agents, ”says Marco Ferrario, a representative of Villegium.
If the investor is focused on receiving rental income, it is important to assess the potential of housing in terms of demand and the object itself, and the geographical point where it is located.
According to the international company Deloitte, finding tenants in most major European cities will not be difficult. For example, in Germany, 54.3% of housing is rented by foreigners and local residents. The share of leased property in large German cities reaches 70%. In Denmark and Austria, this figure is slightly higher than 30%. At the tail of the rating are Lithuania, Hungary and Slovenia, where the share of rental housing is 2-5%.
The study of the payment company WorldFirst shows that the investor can get the greatest profit from the lease in Ireland - 7.08% per annum. Also high yield provides rental housing in Malta, Portugal, the Netherlands and Slovakia - from 6% per annum.
The volume of tourist flow in the country also matters. QBF recommends targeting properties in Asia and Japan when choosing a resort property. “Exactly exotic travel attracts tourists more and more, and Asian markets are especially attractive for American and European tourists in terms of the projected strengthening of the dollar and euro against the currencies of developing countries,” comments Alexander Zhdanov.
3. Consider additional costs
When buying overseas property does not avoid additional costs. They are of two types - one-time and regular.According to interviewed experts, one-time costs for the purchase of a residential property include a stamp duty (1-2% of the purchase amount), a lawyer and a notary (1-2%), a realtor (5-6%), an entry in the land register and registration of a mortgage in the case of a mortgage ($ 1-2 thousand per object), repair costs ($ 5-20 thousand on average), etc. In summation, it is important to take into account the cost of travel and accommodation if the investor plans to participate in the inspection of selected objects.
Regular costs are all taxes (on real estate, rental income) and expenses for preparing an annual declaration, spending on a management company, maintaining a bank account and management accounts, mortgage payments (if any), insurance, utility costs (if they are on and not the tenant).
In different regions, their organizational and legal features. However, in general, the cost of residential real estate can be calculated in advance, based on the planned purchase amount.
“If we take something averaged without force majeure (repairs, court costs, etc.), then we will get one-time purchase costs of about 7% of the value of the object. Regular costs will depend on the size of the object and the availability of a mortgage - on average, they amount to about 1.5-6% of the value of the object (without a mortgage 1-1.5%, with a mortgage - about 6% or higher), ”the general director comments. Personal Advisor "Natalia Smirnova.
In Tranio, when concluding a rental agreement, it is recommended to pay attention to how the costs of maintaining the property are distributed between the tenant and the owner: payment of property tax, utilities, insurance and other items of expenses.
“Contracts such as NN Lease (Double Net Lease) or NNN Lease (Triple Net Lease) reduce the risk of the investor - most of the operating costs in this case lie on the tenant. Preference should be given to objects with a long-term (10–20 years) rental contract without the right of termination, ”concludes Anna Danišek from Tranio.