Property Venture^® weighs up the battle of the “PIGS” against the “BRICS” as property hotspots in 2011

In 2010 the property World seemed to be divided between two camps the “developed” property markets like Europe, of which the weaker nations were dubbed the “PIGS” and the Emerging overseas property markets, often referred to as BRIC nations.

Annualised, global house price growth in Q3 2010 stood at 3.1%, (Knight Frank). The strongest world region was Asia-Pacific with average growth of 9.9% and the most sluggish was Europe at 0.8%, with the weaker nations being (Ireland, Bulgaria, Spain, Greece, Portugal).

So does this mean emerging markets are a better bet for overseas property investors in 2011?” asks Louise Reynolds, Director, Property Venture^â, an overseas property agent.

“Well individual European property markets vary dramatically, with country annual growth ranging from - 14.8% in Ireland and - 3.7% in Spain, to stronger European countries like Poland at 8.1% growth and Turkey at 2%.

So herein lies the rub, there is a complex property story within the European continent and within each country. So Europe is not an all, low-growth property zone.

Europe, the PIGS and BRICs

Events in 2011 can’t help, but be shaped by the troubles encountered in the Eurozone, with the financial bail outs, the banking review and the establishment of a permanent Eurozone financial, rescue mechanism.

In addition, the interrelated nature of the banking systems around the world, will impact over the next few years, when property buyers want to raise finance, as well as watching exchange rates. For example European banks’ exposure to the debt of Spain is €257bn, (according to FT/CEBS analysis) that is a sizeable sum. This will influence access to funding for overseas property purchases.

The Euro area is forecast to grow at 1.3% 2011, vs 6.8% and 6.4% for emerging economies. Economic growth bodes well for property markets, since the wealth generated creates property demand and acts as a driver of the property market.

On the face of it, the emerging economies look a better bet, however they will need resources to grow, both money and raw materials (witness the spate of lead thefts to supply china with base metal requirements). Some emerging markets have not yet got a proven, “foreign property buyer” track record. Sustainability of the domestic, property markets will also be a key question to bear in mind, as well as how foreign property buyers are treated by regulation.

Overseas property buyers need to consider their attitude to risk and reward. Emerging markets might be considered higher risk than European markets. They also have scope to overheat, just as we have seen with rapid property growth in some countries in Europe, so the same fate could happen outside of Europe, take Dubai for example.

What does this mean for Overseas property buyers in 2011/12?

A country need not be showing booming property growth right now, for it to be a good investment opportunity, but it must have the potential to recover in the medium term. This way property can be bought at keen prices and has the scope to grow as an investment.

Choosing the bank a buyer deals with, could be as important as the country chosen to buy in, for 2011 and beyond. Banks with low exposure to weaker economies and bad debt may be worth seeking out.

So here are some overseas property markets Property Venture^â suggests are the hotspots for 2011:

Poland

Low labour costs and proximity to important markets are making Central and Eastern Europe an attractive manufacturing destination and Poland is key to this. Salaries in Poland are significantly below those of Western Europe – a software engineer costs about €1,500 a month – while the workforce is quite skilled. There is an expectation it will take 15 to 20 years before wages catch up to western levels.

Even China is investing in Poland. For example part of China Shanxi Yuncheng Plate Making Group, (one of the world’s leading makers of printing cylinders), is being built in the Łodz Special Economic Zone (LSSE). The cylinders will be used as part of the production of packaging materials for food and pharmaceutical sectors.

It has also established itself as a prudent lender and has less exposure to some of the European debt we have seen in 2010. Poland’s exposure to the debt of other European nations at €6.4bn and reciprocally the European banks’ exposure to Polish debt is €48.3bn, much lower than that for Spain (FT /CEBS analysis).

Poland is expecting GDP growth of 3.5% in 2011. Property investors, seeking capital growth and promising rental prospects should think about Poland. As international employers seek to bring subsidiaries to Poland and recruit more people in city centres and special economic zones, like Krakow and Łodz, demand for property rises.

It is expected overseas investment in Polish property will be over €2bn in 2010, compared with €700m invested in 2009.

Spain

Spain has faced challenges. Construction accounted for just over 10% of the workforce in Spain, so the property downturn has had a big impact on the economy.

Spanish property prices have been hit harder in Coastal areas popular with British buyers. On the Costa del Sol prices are down 20% since 2005 and down 15% in Murcia and Almeria (Bank of Spain).

With price declines and unsold housing stock, this may mean property price stagnation for some time. If the current situation is like the property slump of 1979, when prices fell 25% from peak to trough, there could still be about 10% more decline. If the economy and market pick up, however, then prices could be bottoming 2011-2012 and property can be bought at keen prices.

Sometimes the really cheap properties are not of “holiday home” quality, or in the right location. So headline prices are stimulating interest, but the reality is not always turning out as buyers might be expecting.

There are some areas, with a good news story. Murcia, for example is benefiting from an announcement at the end of 2010 by Paramount Pictures, which will be opening its first theme park in Europe, in Murcia, Spain. Spanish media reports suggest the creation of 20,000 jobs, 15,000 new hotel beds and the attraction of almost three million tourists each year. This will be a boost for the area and potentially for property prices, as visitors plan their holiday accommodation in the area.

Europe is not just about the 16 nation Economic Union. Turkey, whilst not in the Eurozone, is considered part of Europe, being Eurasian and straddling both continents.

Turkey

From a property perspective Turkey is an exciting market to consider in 2011/12. In Istanbul, yields can be as high as 7%. And in some places Villas with shared swimming pools can be as low as €120,000, buyers can seriously look at buying a villa, for the same price as an apartment, in other countries. Property prices are generally undervalued by European standards.

Turkey is another economic success story.  Its economy is expected to finish 2010 with growth of over 6% continuing into 2011. As the economy grows, the wealth generated will have a positive impact on the property market. With annual house price growth of 2% in 2010, this buoyancy is expected to be sustained.

Turkey has become a critically important market for German business, while Germany is a crucial export destination for Turkey – and the bond between the two countries is strengthening.

 Posted by Louise Reynolds, Property Venture^®  January 2011