Sun, sea and zlotys – snap up a bargain

The European housing market hasn’t stopped attracting British buyers, with Spain, Cyprus and Poland among the hot spots. Chiara Cavaglieri reports

Investing in property abroad is a daunting prospect at the best of times. Many Britons who borrowed heavily to invest in foreign properties have been left in negative equity, which may be enough to put off any new buyers.

However, for those willing to risk it and purchase now, there are some real bargains to be had. Property Venture, an overseas agency, has just named its European and Mediterranean hot spots for 2010, three of which are detailed below.

Spain

Spain may be a surprise entry given that it is still struggling with high unemployment and a shrinking economy, but with average house prices falling by 8 per cent in the 12 months from September 2008, this may be the time to pick up property on the cheap.

Property Venture says that about 1.6 million apartments and houses are on the market, with some under construction and others with planning permission to be built within two years. Coastal property prices have seen the biggest declines while inland prices have held up somewhat.

"While Spain has been going through turbulent times, it is nevertheless still a firm favourite as a lifestyle holiday destination. Discounts on seaside property developments means that there are some great purchasing opportunities," says Louise Reynolds, a director of Property Venture.

The British love affair with Spain shows few signs of abating. Spain came out as the top destination for international money transfers at the Post Office, as well as the cheapest place to live within the eurozone, according to its holiday costs barometer.

However, getting a mortgage may not be straightforward. In terms of finance there is currently a big divide between mainland Spain and the islands or coastal regions.

"Lending in mainland Spain is still hugely difficult with loan to value (LTV) limited to 60 per cent, but the islands are a different story. It's a brilliant time to make an offer on top-end property but you need to be a pretty wealthy client to do it," says Miranda John, the international manager at Savills Private Finance. She adds that interest rates are currently good, so buyers can borrow at about 3 to 4 per cent. However, there are concerns that the market has not yet bottomed out and there could be a further decline in prices as well as a surplus of stock.

"Spain has about one million properties unsold. It's definitely a buyers' market but I think it will stay that way for years, we just can't see how they're going to shift the stock," says Stuart Law, a director at Assetz International.

Expect to pay: three-bed semi-detached villa in a complex with a pool, near the beach on Costa de Almeria, would cost from €200,000 (£173,000). Two-bed apartment in a complex with pool, near the beach on Costa de Almeria, starting at €127,900

Cyprus

With 300 days of sunshine a year and budget airlines now flying to the island, the appeal of a holiday home in Cyprus is undeniable. Cyprus avoided most of the effects of the worldwide recession and its property market proved to be fairly resilient. There was, however, an enormous drop in new property sales and developers now have a lot of unsold stock to move.

The good news is that these developers are willing to offer huge discounts. Property company Assetz International says it can negotiate a 40 per cent discount on holiday apartments and villas in Cyprus. However, Mr Law warns that buyers have a limited amount of time to take advantage of low prices. "You should really act over the next few months. We don't think this stock will be around after the summer," he says.

There are some major projects going on in Cyprus, including the newly expanded Paphos airport and motorway, opening in 2012, as well as preparations for a new marina in Limassol.

With a UK-based legal system there are fewer pitfalls, but it's still vital to get a UK-based lawyer. There was a recent legal case in North Cyprus, which is under Turkish control, in which a British couple had the title to the property successfully disputed. "I don't know anybody who will lend in the North and the issue of title is becoming even more complicated as courts generally find in favour of the original landowners," says Ms John.

In the South, there is a range of lenders, although rates are not as competitive as in the rest of Europe and buyers will usually need a deposit of at least 40 per cent. Ms John adds that some developers have negotiated with local banks so it could be worth checking to see if they can offer a better deal.

Buyers can reduce the risk of any problems by getting the best possible legal advice and sticking with the bigger developers who should own the land outright and will hand over the title deeds quickly.

Expect to pay: one-bed apartment near the coast in Limassol, in a complex with a pool, from €206,740 and slightly more for a coastal one-bed apartment about €239,204. Three-bed semi-detached villa in Pissouri, a village near Paphos, would sell for about €290,460

Poland

There are lots of things working in Poland's favour. As a member of the EU, its economy and political system are stable and it was the only country not to go into recession in Europe. Poland saw its GDP rise to 1.4 per cent year on year in the second quarter of 2009; the International Monetary Fund predicts that Poland's economy will grow by 2 to 3 per cent this year. Beyond the tourist attractions of Warsaw and Krakow, other key developments include the Uefa European football championships in 2012.

Poland has even managed to attract investment from major blue-chip firms including Microsoft, Ikea, Coca-Cola and Daewoo. It has also started competing with India as an alternative for outsourced skilled labour.

"Poland is emerging as a serious place to do business. Its geographic location at the heart of Europe means it serves as a transport hub for international firms moving goods across Europe and among its 38 million population," says Ms Reynolds.

There are tax benefits too. Firstly, Poland has a double taxation treaty in place with the UK and secondly, properties held for at least five years will not be liable for capital gains tax. On the downside, mortgage interest rates are currently very high.

"The last time I tried to do a Polish mortgage, rates were about 9 per cent. They may have fallen a bit by now but there are still only a few banks so there's little competition," says Ms John.

Another peculiarity of Poland is that when deciding how much to lend, the banks use current salary and debt in their calculations but will also assume that the borrower uses any credit cards to the maximum. This credit, whether used or not, is then added on to the borrower's debt burden.

Expect to pay: central Krakow apartments: starting prices 360,300 zloty (£76,400) for studios to 1,252,625 zloty) for two beds, excluding 7 per cent VAT. Three-bed suburban houses from 640,000 zloty excluding VAT