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holiday property investment

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umeca74
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holiday property investment

#94497

Postby umeca74 » November 9th, 2017, 6:00 pm

I am considering buying a "seaside" bungalow in Cyprus for investment. It is in a relatively newly built seaside complex and the return on investment is close to 10%, all very well for the time being. But holiday lets are a different beast than letting in say a city centre. Tourists expect something flash and shiny. The property that looks good today and returns 10% will look dated in 10 years time, and as a result the rent will go down and it will be hard to sell it even. So it looks like the useful life of such an investment is much shorter than a regular buy to let. At least that's my worry

anybody in this group that would care to share your experience on such kind of properties?
thanks
nikos

JonE
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Re: holiday property investment

#94550

Postby JonE » November 9th, 2017, 7:55 pm

umeca74 wrote:I am considering buying a "seaside" bungalow in Cyprus for investment. It is in a relatively newly built seaside complex and the return on investment is close to 10%, all very well for the time being. But holiday lets are a different beast than letting in say a city centre. Tourists expect something flash and shiny. The property that looks good today and returns 10% will look dated in 10 years time, and as a result the rent will go down and it will be hard to sell it even. So it looks like the useful life of such an investment is much shorter than a regular buy to let. At least that's my worry
nikos


Γειά σας, Niko!

The property market in Cyprus is very slow for re-sales. It can take years to shift a property (the full-time residential one I bought was on the market for over two years at ever-reducing asking-prices and I've seen stuff sat on the shelves for much longer). There has been a recent resurgence of speculative building but there is a long history of punters being fleeced by developers of new-builds and, of course, by selling agents as the latter are the same the world over (but registered agents collect 5%-6% of selling price from vendor - and I believe fees paid to unregistered agents aren't an allowable cost for CGT purposes). Yeah, you're right - why would anyone buy your tired holiday unit when there are bright new flashy ones springing up all the time? Another point is just how good will site management be? Taking chunky fees when everything's new and looking good is all well and good but having to do something to actually earn those fees when the inevitable slide in the appeal of the development starts to kick in is of little appeal - so you continue to pay and struggle to understand why things don't get done.

The conveyancing "system" is actually very different from what you might expect and it's all too easy to make assumptions based on UK knowledge and experience which will come back and bite your bum. There are a vast number of tooth-marked bums among foreign "investors" in Cyprus property.

Mortgages are also a minefield. One would normally want debt on a property to be in the same currency as the income so as to eliminate exposure to exchange rate risk but getting a Euro-denominated mortgage in Cyprus is problematic now that the remaining lenders are getting a tad more responsible about their lending due to Non-Performing Loans accounting for an eye-watering 44% of total loans (many of those NPLs being strategic defaulters and the largest of those being developers). Swiss Franc loans were 'popular' (with those selling them) but this is now (Switzerland having broken the link between it's currency and the Euro) recognised as a mis-selling scandal but one which remains unaddressed - perhaps because it was mostly foreigners who got burned. If you re-mortgage in the UK to help finance the purchase then that'd be OK (as far as the Forex is concerned) if you were letting only to UK punters who pay in sterling.

Did you know that you can buy a property and believe you've "completed" (not actually a concept in Cypriot conveyancing as you might understand it) but subsequently discover that the developer has a mortgage on the whole site so Title Deeds can't be issued to you? There has been talk (and just a very little action) on allowing the "buyers" of these properties to finally get hold of their Title Deeds. Buying without Title Deeds is a very bad idea but very common and UK buyers just don't realise that they're buying an encumbered property - as I say, the conveyancing system is very different.

I really don't see that 10% return is achievable - but I can guess who told you that. Bear in mind that the all-inclusive hotel package is currently seen as having growth potential for the island's tourism industry so independent travellers may, if forecasts are anywhere near correct, be thin on the ground and have a vast number of units seeking their business. Note, too, that Russia is becoming a growing source of tourists with visitors from UK (the largest group) dropping since the GBP/EUR exchange rate moved post-referendum and with resultant domestic financial woes starting to bite in UK.

I'd recommend getting a feel for things at:
http://www.news.cyprus-property-buyers.com/
and see how others are coping with getting their Title Deeds and other problems at:
http://www.cyprus-property-buyers.com/forum/
while handy guides and links (esp. to the High Commission's very short list of trustworthy, English-speaking lawyers) can be found at:
http://www.cyprus-property-buyers.com/r ... nloads.htm

Perhaps you're looking at the coast area up from Pafos (popular with Brits) or at the area further North near Polis/Latchi which is relatively remote from PFO airport with road links not being wonderful though (over-)development continues apace. Of course, if you're looking at the occupied area of Northern Cyprus (TRNC) then all bets are off and you should heed FCO advice and study the cautionary tale of the Orams case:
https://en.wikipedia.org/wiki/Apostolides_v_Orams

I used to operate Furnished Holiday Lettings businesses in the UK (in South Devon) and briefly looked at Cyprus for FHL (with, ahem, just possibly some personal usage) but ran away as the hard-nosed evaluation of rewards were insufficient for the risks involved - too many unquantifiable unknowns of both the known and the unknown varieties.

Having said all that - and recognising that it all sounds very negative - I bought. However, I researched the "system" in great detail before I emigrated and spent nine months 'on the ground' before finally proceeding with a property that I also subjected to detailed research before-hand.

Let's be careful out there....

Cheers!

JonE
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Re: holiday property investment

#94562

Postby JonE » November 9th, 2017, 8:55 pm

JonE wrote:There are a vast number of tooth-marked bums among foreign "investors" in Cyprus property.
[...]
Switzerland having broken the link between it's currency and the Euro


Ooops! There is a vast number (or "there are vast numbers of...") and please ignore that apostrophe. Similar errors can stand for the time being - I claim that they're attributable to the difference in time zones meaning I'm a couple of hours ahead of UK boarders in drinking time.

Cheers!

umeca74
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Re: holiday property investment

#94641

Postby umeca74 » November 10th, 2017, 8:09 am

thanks JonE, I understand that Cyprus can be particularly dodgy, but my question is about holiday homes in general as opposed to regular residential property as investment. Any thoughts on this? Buying a "normal" flat or house you get an implicit insurance against inflation on your capital, and even appreciation. But with a holiday home, I fear that the capital will dwindle fast.

JonE
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Re: holiday property investment

#94668

Postby JonE » November 10th, 2017, 10:24 am

umeca74 wrote:thanks JonE, I understand that Cyprus can be particularly dodgy, but my question is about holiday homes in general as opposed to regular residential property as investment. Any thoughts on this? Buying a "normal" flat or house you get an implicit insurance against inflation on your capital, and even appreciation. But with a holiday home, I fear that the capital will dwindle fast.


Damn! Just lost lengthy post when I somehow got logged-out from LemonFool. No time just now to reconstruct. Will revert later.

Are you now talking UK-specific or is Cyprus still within scope? It makes a difference - different factors come into play.

Cheers!
...some difficulties posting even this...

umeca74
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Re: holiday property investment

#94753

Postby umeca74 » November 10th, 2017, 3:39 pm

holidays and UK somehow doesn't mix, so it must be down south :)

ps to protect yourself against posting mishaps, select all your text and copy it before hitting SUBMIT. Then at least you can paste it again if need be

Hariseldon58
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Re: holiday property investment

#94810

Postby Hariseldon58 » November 10th, 2017, 7:40 pm

umeca74 wrote:Buying a "normal" flat or house you get an implicit insurance against inflation on your capital, and even appreciation. But with a holiday home, I fear that the capital will dwindle fast.


I would be caustious if taking the experience of a successful market, eg the U.K. where House prices over time have been a good investment and then assuming that other markets will be similar, this could be a serious error.

Holiday homes bought far from home are going to be expensive and difficult to manage, the concentration and the potential illiquidity of a small property portfolio make it hard to consider as a low risk investment and if you are prepared to take risk then perhaps a collective property investment? Or just a blend of equities and bonds , this is a pretty good solution for most folks.

JonE
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Re: holiday property investment

#94815

Postby JonE » November 10th, 2017, 8:21 pm

umeca74 wrote:I understand that Cyprus can be particularly dodgy, but my question is about holiday homes in general as opposed to regular residential property as investment. Any thoughts on this? Buying a "normal" flat or house you get an implicit insurance against inflation on your capital, and even appreciation. But with a holiday home, I fear that the capital will dwindle fast.
[...]
holidays and UK somehow doesn't mix, so it must be down south :)


Holidays and UK definitely do mix - but not for you, it seems, so I'll direct my comments to Cyprus. Consequently, this post differs greatly from what I'd attempted to post earlier.

In the UK some planning consents restrict occupation in various ways so that the property can't be used for year-round residential purposes. This creates a 'holiday home' category in the UK and that market sector doesn't perform in line with the general residential market for various reasons we needn't now explore. I'm not at all comfortable with your notion that residential house price inflation equals or exceeds general inflation (I assume that you're thinking of the UK over a specific period rather than Cyprus) but won't address that either.

That non-year-round category of property doesn't exist in Cyprus "planning": a 'holiday home' is just another house/flat. However, letting a property for holiday purposes is not legal unless one possesses a hotel licence! Of course, there are many individuals who do such lets and have had no hassle - yet. However, the very visible growth of Airbnb has attracted attention to the existence of tourism income that isn't finding its way into the pockets of hoteliers.

Tourism is a major economic sector and hoteliers (which term includes holiday-village resort owners) are effective lobbyists with well-placed friends. They want a stranglehold on "their" market and have recently been making noises about enforcement of existing law and introduction of stronger laws to protect "their" trade (cheaper for them than working to provide a better product). Given that you're looking at a 'sun, sea & sand' development which presumably doesn't match typical local needs for residential use then the outcome they desire could eliminate your income stream and leave you with a second-home that will struggle to find buyers - especially if other owners conclude that they can't afford the outgoings on their place (never cheap) without some lettings income and also seek to sell. Another argument that's been floated is that nobody declares for Cyprus taxation purposes their unlicensed lettings activities (unsurprisingly) so the govt. is being cheated of revenue - that's an argument that law-makers hear pretty clearly.

UK taxation of FHL income from property elsewhere in the 'wider' EU is a special case but that could change with Brexit. Another change with Brexit could involve the ability of Brits to purchase property in Cyprus - and Brits still form the largest proportion (by number) of foreigners buying.

EU citizens may now buy in Cyprus - though it took a very long while before local law was finally brought into line with EU rules to allow ownership of more than one property. Brexit may put Brits in a much more difficult situation when attempting to buy property and that could reduce your potential market when trying to sell - perhaps Commonwealth membership will make no difference in Cyprus law post-Brexit as it's difficult to guess whether pre-2004 CY/UK rules will be restored by default (in any area of law) or whether UK citizens will have the same status as, say, Russians or Chinese (the ones who aren't millionaires). The GBP/EUR ForEx rate could shift significantly as it did post-referendum when the market fully prices-in an impending Brexit.

So you'd be taking a punt on ForEx movements over an undefined time-scale, changes in UK tax treatment of FHL income from EU+, enforcement of existing law on FHL, risk of new law on same, post-Brexit status of potential purchasers from UK and various other positions. Whatever differences may inherently exist between a standard, full-time residence and one that is better-suited to holiday use (whether by owner or for FHL) may not be the only concern. I'm inclined to think that the nearest thing to good news is that CGT is unlikely to be an added concern.

I found that FHL in the UK worked best if one was close to the property. Owners I knew who lived remotely didn't have the same control of quality and didn't enjoy the same level of repeat business (which makes a big difference to the bottom line). I ran some BTL in the UK from 250 miles away but those properties were carefully selected with that in mind and I wouldn't like to be running FHL from 10 times that distance.

I'm happy to answer specific questions where I can but would suggest you do your own research (perhaps starting with those links I provided) and form your own judgements in the light of your own attitude to risk and your own, all-important gut feeling.

Cheers!
...having reverted to TMF-era norm of typing into a text editor for copy'n'paste into post but probably still not proof-reading adequately...

umeca74
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Re: holiday property investment

#94854

Postby umeca74 » November 11th, 2017, 8:06 am

just to clarify, although I've lived in the UK for 15 years, I am based in Cyprus, so ForEx is not an issue. However this and other discussions I did recently have completely put me off the "holiday let" area for investment. To begin with, the 10% return assumption is optimistic based on word of mouth, which probably won't be confirmed in practice.

as for tax, I know that many down here don't pay their rent income taxes, but personally I do, so I don't have anything to worry about. Tax you'd pay whatever investment you would go for

finally, what I said about house prices keeping up with inflation, I mean in the long term. Ups and downs abound but only temporarily. So you get a return equivalent from shares PLUS inflation protection for the capital. WHich is much more than can be said for stocks and bonds that struggle to give a return that matches the rental income, and the capital is eaten away by inflation

basically I don't know what to do with my cash pot :)


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