Most property experts will tell you where to spend your money, but they seldom tell you where not to invest. It’s the type of advice that could save you a lot of money, making it equally as valuable as the industry’s focus on “hot real estate”.
This is according to George Radford, Head of Africa at international property investment company IP Global, who says that after analysing trends, legislation and housing prices in a host of cities in Europe, Asia and the Middle East, his company has come up with a lengthy list of places that foreign buyers should probably avoid.
“In many cases, regulatory environments create barriers to entry.”
Radford says some cities on the list might come as a surprise because they rank highly as tourist destinations.
Amsterdam known for its canals, artistic heritage, picturesque narrow houses, and liberal culture are a drawcard for visitors, but properties to invest in are hard to come by because houses are in short supply. “Even if you find a place that suits the bill, the high rate of Value-Added Tax, which applies to the transfer of new property, can be a turn-off,” says Radford. Similarly, new buildings in Rome also have high transaction costs, he adds.
Helsinki, Stockholm, Uppsala in Sweden and Oslo in Norway have been battling weak growth in their respective housing markets. Radford says tight mortgage regulations for foreign buyers coupled with a steady decline in housing prices since early 2017 are adding to Oslo’s woes.
The idyllic European cities of Copenhagen, Geneva, Zurich and Vienna have strict regulations governing purchases by international investors. “In the Danish capital, foreigners are restricted by law from buying residential property unless they take up permanent residence,” explains Radford.
He says Costa Blanca on the south-eastern coast of Spain might seem like an obvious choice for investors in the buy-to-let market, as it boasts luxury villas along one of the most beautiful backdrops in the world. “However, the truth is that many people have been priced out of the market because the average cost is around EUR1.8 million,” Radford points out.
The oil-rich United Arab Emirates is renowned for its opulent hotels, resorts and is celebrated as the playground for the rich and famous. Radford says the rapid growth of the desert oases of Abu Dhabi and Dubai has coincided with an oversupply of housing units and a reduction in prices and rent.
Istanbul, Turkey’s cultural gateway between East and West, has great potential, but political and economic uncertainty remains a worry for investors.
Israel’s capital of Tel Aviv has made the list for two reasons: it ranks low on “ease of doing business” indexes and property prices are “very high,” especially in prime central locations, averaging around USD14,700 per square meter.
Moving further east, the lack of attractive mortgage options makes it difficult for investors to secure funding in the Vietnamese cities of Hanoi and Ho Chi Minh City. South Korea’s capital of Seoul and Manilla in the Philippines pose the same problem.
Meanwhile, the hefty transaction cost for international buyers – an extra 15 % tax above standard stamp duty – makes buying a property in Hong Kong a pricey endeavour.
Radford says that it’s important to research real estate regulations, ownership, tax laws and mortgage options before settling on an investment destination.
“Just because a city is ‘trending’ does not mean it’s a good investment,” he says.