RESIDENTIAL PROPERTY : A LOOK AT EMERGING OVERSEAS MARKETS
By: Noreen Hynes
The emerging markets of Turkey, Croatia and Bulgaria offer much opportunity for capital appreciation. But there are risks as well as opportunities. Noreen Hynes has some tips and advice for would-be purchasers. I spent a weekend recently checking out the property market in Valencia in Spain. It was in a wonderful place called Marina D'or, and it contains the largest seawater spa in Europe. One of the staff there named Javier, who was assigned to show me the new apartments and bring me around to see the wonderful spa, told me he was an airline pilot by profession. He said he was not able to get a job as a pilot and was presently working in Marina D'or. He asked me a lot about Ireland and how the property market was, and then went on to enquire about the Bulgarian property market. I figured he had visited our website and was just curious, but that was not the case at all! He is 24 years old, and I could recognise that he was thinking like an entrepreneur. He said that as far as he was concerned he was a European, and that he was born when Spain was just freeing itself from the clutches of Franco and that life had not gotten any easier for young Spanish people who were looking for jobs. He said that he was thinking of working in China for a while to earn some money to provide seed capital to buy a house in Spain.
Does this story sound familiar? At present he could not even aspire to owning a house because the prices were so high. I explained to him Ireland was no different and that young Irish people found it difficult as well to purchase a home. I found this conversation interesting because he was thinking outside the box and he recognised that the Spanish property market was maturing and the Spanish were getting wealthier and this was driving up property prices to the detriment of the young men and women who naturally aspired to owning their own home. He also said that there were Spanish real estate companies marketing property in the emerging markets to the Spanish and that he believed the Spanish will now start investing in these markets as well. This situation is not much different to what is happening in Ireland with the exception that the Spanish are about 4 to 5 years behind the Irish. If you think of it, there has never been a time in our lifetime or our parents' lifetime when so much opportunity presented itself to the Irish. We have money to spend and so much opportunity to purchase property.
The emerging markets of Turkey, Croatia and Bulgaria offer so much opportunity for capital appreciation. Whilst the opportunities are there to earn significant capital appreciation in these emerging property markets there are also risks and these need to be identified and overcome as well. With property prices so comparatively low in these markets, what most buyers look for is future capital appreciation and this is far more likely in countries that have not yet joined the EU, but aspire to do so. The three countries worth looking are Croatia, Turkey and Bulgaria because they all have growing tourism markets. While it is difficult to compare prices across different countries, the purchase price per M2 in Bulgaria is about one third of what it is in Spain, a more established market. At present you can purchase an apartment for around €820 per m2 whilst in the popular areas of Spain this would cost you on average €2,500 plus per m2. So how do you know where to start your search? One of the reasons that many Irish purchase in the coastal areas is that in countries where tourism is growing there is a need for good quality rental properties in these areas.
The Turkish climate is hot in summer and cool to cold in winter. Tourism is growing fast it grew by 33% from 2002 to 2004 and there is a need for more good quality accommodation along the holiday resort areas like Sunny Beach and Golden Sands. The gross rental yields are good at around 5% and good capital appreciation potential exists. Although there are no statistics available real estate agents there say prices are rising by around 25% annually at present. Turkey has been one of the tourist hot spots for many years and has a wonderful sandy coastline. Inward tourism grew a whopping 26% in 2004 alone and it is expected to grow at a fast pace in the coming years. Property prices have being increasing by over 25% last year in the areas of Bodrum, Alanya and Fetiyhe, and as tourism grows so will the number of people purchasing property there, as we have seen so spectacularly in Spain in recent years. You can purchase a lovely apartment in Turkey for around €50,000 and if you want a luxury beachfront apartment then expect to spend €80,000 up. You can purchase property in Turkey for around €500 per m2, but the bad news is that these prices are not expected to last long! There is opportunity for investors to invest in the Turkish property market and because tourism is flourishing house tourism is expected to grow at a similar rate to what it did in Spain. In fact many people in the real estate industry believe Turkey will follow in the footsteps of Spain because it has so much coastline, a well developed tourism industry and long hot summers and at present cheap property.
Bulgaria is a relatively poor country, the average monthly wage being around €150, while more in the cities and developed coastal areas, and therefore the cost of living is low. It is a cheap country to live in and this will obviously change in the years ahead when it joins the EU in 2007. Many believe that there is significant capital appreciation to be earned by those who purchase there now. However purchasers should be realistic about rental income as the rental market is not that well developed there as yet.
Croatia has an acute shortage of hotels especially in the Split area and not many 3 or 4-star apartments either. Coupled with this the planning laws have been tightened up and densities reduced significantly on larger plots of land. This should result in less building and more green areas all of which will add to the long-term value of these properties. Also the rents are being set internationally because of the growing tourism market and as labour is relatively cheap, building costs are low. This should result in good yields on properties that are being rented to tourists, especially in a market that attracts high quality tourists like Croatia. Property prices rose by over 20% in coastal areas of Croatia in 2004 and especially in the area around Split and the Dalmatian Islands and in Dubrovnik, and many real estate agents there are forecasting a rise of 10% to 15% in 2005.
My advice to anyone thinking of purchasing property in any of the emerging markets is to take independent legal advice in the country where they are purchasing. In conclusion, opportunities exist in the emerging markets for the astute investor, but the demand for good residential properties means that prices are being driven up from a low base.