Europe's Top Property Markets
Investing in the real estate of European countries has remained one of the most attractive and reliable tools for preserving and increasing assets for many years. Let's explore how to avoid mistakes when choosing a country and region for investment.
First, let's answer why real estate is a worthy investment. For starters, it offers relatively high, and more importantly, stable returns above inflation. Investing in European real estate, you can expect yields ranging from 4% to 11% and higher, surpassing traditional bank deposit interest rates. Yes, the stock market might promise bigger gains, but the risk of losing money due to high volatility is much greater. Real estate markets in developed countries, even if they fall temporarily, always show growth in the long term. Consider this figure: over the past 10 years, the value of real estate worldwide has increased by an average of 5.4% per year. Experts believe that this growth will only accelerate in the next decade. The housing crisis is still relevant for most European cities, meaning real estate prices on the continent are likely to continue to rise.
Secondly, owning real estate puts several financial tools at your disposal: short-term and long-term rentals, flipping, and more. Don't forget about the "Golden Visa," as well as the opportunity to spend vacations in your own property, rather than renting.
A pivotal question for investors is how to select the right country for investment. There are several key criteria to consider.
States with unstable political and economic foundations are unlikely to be attractive for investment. The relatively low cost of real estate in such countries might seem tempting, but purchasing there could lead to endless concerns about the safety of your funds. The property's value might continue to drop, be illegally seized, or physically destroyed. Seeking compensation in a state with weak legal frameworks could be extremely challenging, effectively rendering your investment worthless. Investing in the markets of developed, democratic countries, such as those in the European Union, not only secures your finances but also your peace of mind.
Even among developed European nations, not all are welcoming to foreign investors. In the next stage, it's vital to study the tax laws and property transfer rules of the selected real estate market. Taxes and operational costs can increase the final price of the property by up to a quarter. Additionally, annual or even monthly property taxes could become an extra burden. Consider these factors comprehensively: lenient taxes and duties for foreigners might offset higher nominal prices on the real estate market, and vice versa.
The process can be significantly streamlined by consulting with a local, experienced lawyer and a reputable realtor specializing in advising foreign investors. Their fees should also be accounted for in your final budget. Furthermore, be prepared for high demand for such specialists in investor-popular regions, which might exceed the supply.
While understanding a country's real estate market is crucial, it's just the first step in choosing the right investment property. For investors, the micro-market of a specific region, city, or even neighborhood is far more critical. Within a single country, the gross rental yield can vary fivefold. Smaller towns often offer higher yields compared to capitals and large cities where property prices are extremely high.
It's essential to understand that property prices and rental yields are not directly correlated. Property prices are largely influenced by expectations of future increases and deteriorating lending conditions. In contrast, rental rates are determined by the paying capacity of potential tenants – city residents and tourists. Consequently, property values might rise while rental incomes remain static or change differently.
What else should be considered when choosing a location for investment? Firstly, we assess the investment attractiveness of the city. Four main factors positively impact the real estate market: economic growth, low-interest rates, increasing demographics, and various tax incentives, deductions, and subsidies. A combination of these factors instills confidence that the property purchased in this city can be resold years later at a significant profit.
The potential to obtain residency or citizenship through real estate investment in the country can play a decisive or at least significant role in choosing the region. Greece offers one of the most attractive visa programs for investors. Foreign nationals purchasing property worth at least €500,000 can reside in the country for five years.
When investing in properties for short-term rentals (STR), another critical factor comes into play – the tourist potential. This directly impacts profitability. Take Greece, for example. In the first half of this year, the tourist influx to the country increased by 26%, correspondingly pulling up the average STR revenue. It's important to remember that a city can attract various types of tourism - cultural, recreational, business, event tourism, and more.
Another potential hurdle to consider in advance is the legislative restrictions on short-term rentals. STR promises the highest return, but a careless approach to selecting the investment location could lead to lost income. The rules change not only from country to country but also from city to city. For example, in Paris, short-term rental of apartments is limited to a total of 120 days per year, in Lucerne – 90 days, and in Palma, it's entirely banned. Madrid's situation is even more complex: STR quotas are set by districts, and where these are filled, no new licenses are issued.
You might face the necessity to register a legal entity in some places, endure cumbersome paperwork for an STR license in others, or deal with high taxation on short-term rentals. Many tourist hubs see local communities lobbying for new restrictions, so immersing yourself in the news and thinking ahead is also advisable.
Assessing the attractiveness of the STR market solely by profitability is a mistake. Individual offerings in markets like France or Portugal may seem more promising, but Athens' legislation is more investor-friendly, especially for non-residents: unlike most major European cities, there's no need to license the short-term rental of apartments. Both individuals and legal entities can manage the property, with no limit on the total number of nights for STR, only a single booking limit of 60 days. Moreover, the average yield from STR in Athens – 11.07% – is among the highest in Europe.
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