Eastern European property warning

Thursday, 3 August 2006 12:00 AM

Investing in the exciting 'up and coming' properties of eastern Europe is seen by three in ten Britons as the market that will deliver the best capital returns over the next ten years.

However, Britain's largest property investment specialist believes buyers investing the new-build deals in the region could be unaware of the risks.

Research conducted in Croatia and Bulgaria, as well as other countries in the region, has shown that the danger of being unable to sell the property in the future is much greater than buyers realise, according to the Inside Track Group, which commissioned the survey.

"It is a good idea for buyers to consider higher risk, high return properties to go alongside low risk investments that make up the bulk of a successful housing portfolio," said the company's chief operating officer Anthony McKay.

"In Croatia and Bulgaria, though, inexperienced investors are putting their life savings on the line in the hope that they can make a fortune. I fear many people may end up bitterly disappointed because they are not aware of the complications within this market," he added.

Inside Track highlights several features of the eastern European purchase system that could be problematic.

In Croatia one such problem is having no legal organisation to regulate home ownership. This can lead to a lot of confusion in a situation where the person selling a property is not to the owner, or if a property is built without the appropriate permission being granted.

In Bulgaria investors must establish a limited company before they can purchase land. However, tax regulations are complicated, which can confuse investors.

Investors may also be unaware of how low average wages in both countries will affect the future return on their property. If locals cannot afford to rent new-build properties, investors will be limited to foreign tenants only.

The group says the three questions buyers should ask themselves before investing in any piece of property are: 'Will the re-sale value be more than the purchase value?', 'Will the property be desirable to rent?' and 'Will the asset be safe?'.

"For the Croatian and Bulgarian markets, the answer is likely to be 'no' for at least one of these questions," explained Mr McKay. "Before recommending any country to property investors, we always perform what we call 'due diligence': an analysis of the political stability of a country, its legal system and also the transport and banking infrastructures."

Tags:
• uk property news