Which European cities will attract attention in 2012?

Tuesday 10th January 2012

Louise Reynolds of international estate agent Property Venture guides on where the good news will come in European property.

At times of uncertainty and volatility it can make sense for investors to plump for safer investments for decent returns. Whilst there is much uncertainty surrounding Europe, there are many thriving cities to invest in for attractive returns. What’s more the divide in Europe, is no longer about East versus West, but in addition which country has a decent sovereign credit rating.

So what does this mean for overseas property investors in 2012?

City property, in particular - as opposed to holiday home, seasonal, or smaller town property -  can be seen as a “safer” investment, as long as the city has decent prospects, in a country that is stable and performing well on the world stage. City property is a bit like island property, where limited space and land, in the given area, restricts supply, and in turn, can stimulate demand.

2011 was a year dominated by fears of, and grappling with, Euro-toxicity. Whilst sterling did not appreciate against the Euro as much as one might have expected, 2012 should be a year to look for great buys in Europe. It is true to say not all countries in Europe are suffering in quite the same way and just because the economic climate in one country doesn’t look great, it doesn’t mean that every city in the country is suffering. 

So what determines the value of a European city property investment?

Crucial determinants of a promising investment market are aspects such as a stable economy, positive capital growth prospects, an established and resilient rental demand and accessibility of mortgage finance. A country need not have booming property growth right now or double-digit yields, for it to be a good investment opportunity, but it must have potential in the medium term to long term.

Property Venture’s guide to three City property markets worth seeking out:

Poland Snapshot

Poland is a great place to look for investment property. Whilst it is in the EU, it has not yet adopted the Euro and Sterling has strengthened against its local currency the Polish Zloty. It represents a safe haven economy, which is politically stable and has a buoyant property market.

Infrastructure
The EU is improving the infrastructure between, and within member States, to support the growth in traffic. The investment required to complete and modernise a well-performing, trans-European transport network (TEN-T) has been estimated at over €1.5 trillion for the period 2010-2030. A key plank of this strategy is the rail network, upgrading to high speed and Poland is at the heart of this investment, fast becoming a major transport hub for international companies to move their goods around Europe.

Krakow and Warsaw
UEFA 2012 Football Championships are to be held in Poland and Ukraine, so stadia and roads have been built to accommodate this big sporting and tourist attraction. Warsaw will host matches and even though Krakow will not have a match there it is rumoured as a hot favourite as the England team’s choice for their base camp.

Property price appreciation has tended to be higher in these popular cities than other parts of the country, so are proven, stable cities for property investors. There is also a strong local market in major cities like Krakow, so there is a more assured exit plan should you need to sell, as the local middle class increasingly buy their own homes.

Sterling recovered a lot of ground at the end of 2011 and was back to over 5 Polish Zloty to the pound, up by more than 25% on the preceding 12-18 months. This means property can be 25% or more, cheaper.

Turkey Snapshot
Turkey is an economic success story. In 2011 its economy continued growth at 8%, the same rate of growth it experienced in 2010. The property prices in Turkey are still significantly lower than other European destinations. But as Turkey is becoming an increasingly popular place to visit, or buy a holiday home, because of its great climate and property investing potential, upward pressure on prices are taking hold.

Istanbul, Turkey
Istanbul, a partial European city,  contributes 55% of Turkey’s trade. As the economy grows further, the wealth generated will have a positive impact on the property market. From a property perspective Turkey is an exciting market to consider in 2012, yields can be as high as 7%-10% and capital growth in excess of the national growth figure of 7%.

Infrastructure
The building boom has been driven in part by the city’s rapidly expanding population; in the 30 years to 2010, the official population jumped from 2.7m to 13m (16% of the country’s population) as Turks migrated from poorer parts of the country, driving demand for property.

Turkey’s economic growth in the past decade – barely affected so far by the global economic crisis – has fuelled demand for better-quality accommodation for the new middle and wealthy classes.

The Asian side of Istanbul, home of Sabina Gökçen Airport, is currently seeing a new metro (M4) being constructed with 19 stations from Kadikoy to Kaynarca, which will extend to the airport. The Marmaray Tunnel (a rail tunnel under the Bosphorous) is being built to connect Asian and European-side metro stations and is shortly to enter service in about 2012. This will undoubtedly have a positive impact on the property prices in this area. 

The metro bus is also being extended on the European-side of the City, in the Beylikduzu area and will take passengers into the city centre. The European side of Istanbul has a well-developed infrastructure and a lot of commerce in the area, which provides regular demand for housing and property rentals.

A proposed relaxation of rules around non-Turkish nationals buying property is likely to create a $10 billion property market, spurred by sales to Arabs. The proposed change in Turkish law would drop reciprocity conditions, whereby only foreign nationals are able to buy property in Turkey, whose host country allows Turkish people to buy in their country. From a property perspective, increased demand will spur property prices, particularly in Istanbul.

Cyprus snapshot
Cyprus has historically been protected from the financial crisis, mainly due to low dependency on exports, careful fiscal policies, a resilient financial sector and limited exposure to subprime mortgages. Whilst economic growth is not as buoyant as some countries, individual cities are worthy of consideration.

Limassol

Has proved to be the good news story for Cyprus, during an economically uncertain time and where the national property market has not done as well as some would expect. Recent property data from the Cyprus Department of Lands and Surveys reveals the number of homes being sold is now at a lower level than when the market retracted in 2009. However, Limassol property sales have proved more resilient.

Infrastructure improvements
Limassol Marina will be operational 2012 and is predicted to have a positive impact on the local economy, not only generating jobs, but also attracting a more upmarket clientele to the cosmopolitan city of Limassol. With a population of about 180,000, there is a significant cohort of Russians who are permanent residents and who run businesses from Limassol. It is also a year-round city for many Northern Europeans who want to escape harsher, colder Winters, on the beaches and shoreline of Limassol.

Limassol not only has busy commercial and international interests, it also has fabulous beaches for holiday-makers and property is also in demand from the local population. What’s more, building of the new Limassol Marina is developing momentum and that will make Limassol even more irresistible, presenting unparalleled, waterside, property buying opportunities.