International property investment advice from our expert Alan Forsyth
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Posted on 29 November 2006
Leasing Systems
Hi,
Hope you are well.
Colliers this week released an interesting report looking at various countries around the world – and how their leasing systems work with commercial property.
Some significant differences between the countries, so if you are looking to take on commercial leases, or purchase overseas make sure you understand how it operates – as most likely you will see differences to your local market.
For example in some countries, leases can be as short as 1 year as standard, while in others 9 years will be more likely to be the norm.
It is also important to note what options are in place to extend the lease or increase the rent – in some countries rents will increase along with market levels, in others this must be negotiated with both parties.
This is well worth checking out if are looking to take on commercial property in different countries – some countries look more favourable to the buyer/investor!
Full document can be found at click here.
The Baltic States
I keep reading positive news about the Baltic states – namely Estonia, Latvia and Lithuania, and it is not surprising. For me these 3 countries are offering some of the best economic factors of any countries in the world.
Let’s look at the key macroeconomic factors:
Interest rates
Interest rates have decreased significantly and are the lowest ever - in the local currencies they are now around 4% and are converging with Euro rates in anticipation of joining the Euro-zone in 2008, this clearly has a significant effect on the Latvia real estate market.
Buying Costs and Selling Costs as % of purchase price
The stamp duty charged by the Government is 2% of the total cost of the apartment. Stamp duty comes into effect on completion, i.e. once the contracts/deeds have gone through the notary and been transferred to the new owner.
Overall buying costs, including the stamp duty will be around 3.5% of purchase price – amongst the lowest in the world - which clearly has a positive effect on the real estate market.
% Homeowners
With incredibly low rates of borrowing and large amounts of equity, all 3 nations homeowners can afford to buy, and so is a large demand locally for any new build property in the major towns – this is exactly what international investors want – a strong local demand. In Lithuania the % of homeowners is as much as 94%!
Financing/Refinancing
Mortgage loans currently account for only 5% of annual GDP in Latvia (EU average is 48%); it is predicted that over £500 million of increased lending will be spent on the Latvian property market in the next 5 years – this point cannot be emphasized enough – it means huge internal and external demand over the forthcoming years, and upward pressure on prices of Latvia property. To compare Latvia to other EU countries, mortgage loans in EU countries currently account for an average of 48% of their annual GDP – so around 10 times more than in Latvia - this will have a huge impact on the pricing of Latvia real estate, as even now demand outweighs supply. Lithuania is even stronger with only around 4% of the property market currently financed.
This borrowing to foreign investors means the Latvia real estate market is as attractive as any in the world.
Employment/salary trend
Unemployment was 8.8% in 2005 in Latvia - almost unchanged compared to the previous three years - but is less than 5% in Riga – way below countries such as Germany.
Net average national salaries increasing by an incredible 17 per cent in the first quarter of 2005 in Latvia (real wages increased by 10.3 per cent), giving a huge push to the Latvia real estate prices.
So a very healthy trend which is echoed in Estonia and Lithuania, as locals have increased disposable income and the economy is clearly booming – but with a long way to go as it plays catch up with the rest of Europe.
Taxes – What taxes will you come across when buy property in Latvia?
Taxes are very attractive – if this is possible – with flat rate taxes ranging across the 3 countries from between 15-25% - no 40% tax brackets here!
Legal/Political situation
Strong legal systems – with all 3 countries positively highlighted by the World bank.
They have excellent land register systems - protecting ownership rights for the property and land.
All 3 countries are part of the EU.
Accessibility
These countries are very accessible from most of Europe. The budget airlines Ryanair and Easyjet fly into Riga and Tallinn from Liverpool and Stansted. Airline passenger traffic to Latvia tripled between 2002 and 2005 - this accessability has a strong impact on the real estate markets.
VFM Compared to the International Market
Prices in the capitals while rising rapidly, are still far lower than many surrounding capital cities – such as Helsinki, Copenhagen and Moscow, which means for the international investor the Latvia real estate market is very attractive.
So very positive news – I particularly like Vilnius and Kaunas in Lithuania just now,
Hope your investing is going well, I am checking out various deals around the UK this week – before heading overseas finalizing a deal next week – will keep you all posted!
Have a great week,
Regards
Alan
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About Alan:
Alan Forsyth is a full time property investor from the UK. He runs the website www.property-investment-tips.com
which gives free, independent investing tips to investors. This site, www.property-investment-deals.com is designed to run alongside
his original website, and will give in more detail his recommended property deals, and full details/pictures of any new deal on offer.