Is now a good time to invest in European buy to let?

Europe has many stunning cities and breathtaking landscapes, and if you’ve been impressed by a particular location while on holiday or business, the idea of owning a property there may be appealing.

Of course, you’d need to take a businesslike approach to what would be a major investment in a country where market conditions and property laws are different to those in the UK.

You’d also need to be very clear on whether you were buying an overseas property specifically to rent it out as an investment, or whether you’d be using it as a holiday home.

The appeal of the continent

The European property market has been bullish in recent years as investors remain confident, which is expected to drive ongoing growth in a number of continental real estate markets into 2019 and beyond.

Main European capitals such as Paris and Berlin are considered highly desirable for real estate investment. Indeed, France, and Germany – along with the the UK – represented the lion’s share of investment volume, representing over 70 per cent of transactions before 2016-17. Nor has this strong appetite for property investment in these big cities seen any sign of slowing down.

Elsewhere, investor enthusiasm has seen consistently rising property prices in cities such as Lisbon, Dublin, Rotterdam, and Zagreb in Croatia, which are experiencing particularly high levels of growth.

European buy-to-let markets continues to thrive

A significant European buy-to-let trend has gathered pace in recent years, with real estate increasingly regarded as an appealing investment type.

Rental yields on buy-to-let properties in continental Europe will typically generate between two and four per cent after deducting your overhead charges.

And, while this is not spectacular, it is substantially better than the one per cent yield on, for example, a long-term corporate bond. It’s also worth considering that a buy-to-let property enables investors to cash in on potentially higher yields going forwards.

Which property types are creating better returns?

A major trend in the European housing is buyers looking for smaller houses and apartments or those that are part of new developments, rather than large villas that are more expensive to buy and maintain.

Older investors, who usually have greater financial resources, may be able to afford a big property, but are put off by the prospect of coping with an extensive maintenance programme. On the flipside, younger people typically have less cash to spend, and are reluctant to spend time managing the maintenance of large properties.

Focusing on rental income and not capital gain

You should also take into account that investor focus in Europe is on rental yields, as opposed to capital growth. This is because prime residential markets are already expensive, so there is little scope for significant increases, at least in the short term.

Of course, the loss of a tenant often means a void period and finding a new tenant can be more difficult in continental Europe than in the UK. Even so, an attractive property in a popular location will reduce the risk of a void period in the first place, while making it easier to bring in a replacement tenant should the need arise.

Need-to-know info about European buy-to-let investments

Different European countries have their own financial regulations that you should make yourself aware of before going ahead with any transaction.

It’s especially important to establish:

• What local taxes you must pay
• Whether you would incur any capital gains tax liabilities
• The implications for the property in the event of death
• Whether you would be subject to inheritance taxes

A further consideration is that in continental Europe, tenants enjoy greater legal protection than in the UK.

Authored by Melvin Lunn

Melvin has over 20 years’ experience in global property sales and investment. For more information on investment in an overseas property contact him 03333 034 767.

The above article is written as a guide only and does not constitute financial advice. Professional advice should be taken before entering into any property investment or financial agreement.