Authors Posts by Les Calvert

Les Calvert

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Les Calvert is the owner and CEO of many internet property and travel related websites including this overseaspropertymall.comand he regularly writes news and articles for his websites, trade magazines and newspapers.

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Rampant inflation; shaky, low interest no-deposit loans; 400 per cent stock market growth in 2 years; property values rising nearly 18 per cent over last year’s values.

Sound familiar? Followed by a tightening of lending restrictions, interest rate increases, 30-40 percent vacancy rates in new developments. Sound even more familiar? This is not the US market, this is China, which seems hell bent on following in the footsteps of the recent US sub prime crash.

The Chinese government is pulling out all the stops to prevent the same thing happening there. Interest rates have been increased five times in the last year and reserve requirements for commercial lenders increased eight-fold. The central planning agency imposed a price freeze on household essentials like cooking oil, electricity and water, in an effort to reduce inflation below 6 per cent. Securities regulators in more than one province have issued new rules banning high school and college students from buying shares to rein in speculative stock market investments.

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Changes to the tax treatment of mortgages, inheritance tax, wealth tax and health charges will all impact non-nationals with residential property in France that they use as their primary residence. This has implications for as many as 100,000 UK citizens that have settled across the Channel permanently, The Times reports.

The introduction of mortgage interest tax relief is probably the most significant change to the financial framework of investing in property in France. However, it’s essential to realise that the change is subject to strict limitations, the chief of which are that it only applies to purchases made since mid-May and only for the first five years of the loan.

There are also ceilings on the amount of interest that benefits from tax relief  €1,500 for couples and €750 for single people – according to French Property News, which points out that there is a cap on the total proportion of tax relief that benefits from tax relief of 20%. The magazine does not make clear if this is each year or for the lifetime of the mortgage; it seems a difficult calculation for anyone (purchasers or tax authorities) to make if the latter is intended.

Barclays Bank are offering a variable rate mortgage for property purchases in France with an introductory rate of 4.35% and 1.15% above the interbank rate (Euribor), currently 4.781% or a 25 year fixed rate mortgage at 5.10% (not much more than the seven year term fixed rate at 4.95%). Taking the variable rate mortgage (after the first 12 months) as an example it seems that you would only be looking at the purchase of just over €25,000 worth of property.

The new regime seems clearly designed to benefit purchasers at the lower end of the property ladder, giving proportionately the most assistance to purchasers buying properties at around €126,000. In terms of French property this is a much more significant sum than would be the case in the South of England (or Ireland). Possibly, the most interesting question at this juncture is whether or not the French government has plans to be more generous with mortgage interest tax relief in the future, growth and stability pact permitting.

The changes to inheritance tax (IHT) will be important for UK citizens who have retired to France. Property passing to spouses will now receive the same (exempt) treatment as it would in the UK. The IHT allowances for each son or daughter rise from €50,000 to€150,0000. The actual IHT rate remains on a sliding scale from 5% on amounts up to €7,600 to 40% where the taxable element of the inheritance is over €1.7m.

With regard to the French wealth tax (Impot sur la fortune – ISF) the key change is a reduction from 80% to 70% in the proportion of your assets that are subject to the tax. In terms of French residential property, this makes the tax significantly more avoidable. However, it is important to remember that residency in France means that non-French assets come within the ambit of ISF with serious implications for those who still own property in the UK. The recent tax treaty between France and the UK does allow for a five year exemption period from this onerous levy. It’s important to remember that the ISF is levied on the household rather than individuals but there are exemptions relating to the ownership works of art, antiques, farmland and woodland, and assets relating to employment.

The changes to healthcare charges relate to the refunds available to people who have not yet reached retirement age but are not working.

At the end of July we briefly mentioned Vietnam as an example of industrial development as an indicator to spotlight possible real estate opportunities, noting that the government were relaxing the rules on foreign direct investment in property to a limited extent. While there certainly seems to be a lot of opportunities in investing in Vietnho+chiam generally, the picture regarding real estate investment remains relatively obscure.

Vietnam has been liberalising it economic system since the mid 1980s when the government embarked on its programme of ‘renovation’. Growth in recent years has been rapid and compared to India, China or the Philippines there has been greater success in removing extreme poverty measured by the numbers of people living on less a dollar a day. However, investors need to remember that Vietnam is a one-party state and the country’s rulers seem to be taking a cautious attitude to opening property investment to foreigners, in the interests of maintaining their own ability to influence economic development.

Ho Chi Minh landscape
Ho Chi Minh City landscape [photo credits to waa on flickr]

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Villas in Tuscany Italy
Panzano in Chianti, Tuscany [Photo credits to Cinnamon Bun on Flickr]

Value for money in Tuscany and neighbouring Umbria seems more problematic than in most residential overseas property markets. Favoured by climate, landscape and history, these regions of Italy are well and truly discovered. So ready-for-occupation/letting properties are not cheap and nor is the process of buying in skills and materials to renovate properties. There is little new building going on as this type of property doesn’t have the allure of authentic Tuscany (but see this new build apartment in Tuscany).

Apart from possessing the skills needed for renovation, the only other way to increase what you get for your euros is to look beyond the core region around Florence and Siena. However, the tide of expat property investors has steadily been pushing out the boundaries of Tuscany’s second home market. So that, whereas bargains could be found in the hinterland of Lucca, in the west, or Grosseto, in the south, in 2005, this year the Lunigiana district is becoming the focus of attention. From here, Florence is almost as distant as Milan.

The Caribbean is a playground of the rich and famous. It is also seen as business-friendly. Perhaps surprising, then, that some Caribbean countries have strongly restrictive almost socialist-style housing market systems, with strict rent controls, and strong security for tenants.

In a study, the Global Property Guide examines the landlord and tenant systems of 19 Caribbean countries and territories in terms of rent control, security deposits and tenant eviction. With contributions from local law firms, each economy is rated as strongly pro-tenant, pro-tenant, neutral, pro-landlord or strongly pro-landlord.

The study notes that, against popular notions, a ‘pro-tenant’ rental market is actually harmful to tenants in the long run. It discourages landlords from investing in new rental units, leading to less supply. As demand for rental units increases with population growth, shortages develop. Landlords lose the incentive to maintain and upgrade their rental units. The quality of the existing rental housing stock deteriorates.

The most restrictive rent control law in the Caribbean is enforced in the US Virgin Islands. For housing accommodations, the maximum rent ceiling is the rent in force and in effect on July 1, 1947. For buildings created and/or rented after July 1, 1947, the maximum rent allowed is the first rent charged for the unit.

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Slovakia is reckoned to have all the ingredients of a fine holiday destination except the sea and, it might be said, any large lakes like the Alpine nations benefit from. It does have beautiful mountain scenery, castles (Krasna Horka, Muransky Hrad and Spissky Hrad) and national parks (The Tatra National Park, the Low Tatra National Park, Pieniny National Park, Slovak Paradise for caves, Muranska Plateau and Poloniny National Park for wolves, bears and wooden churches). Eastern Slovakia has the lions share of these atttactions.The High Tratra fulfilled a role as a scenic holiday playground for visitors from the richer western half of former Czechoslovakia (now the Czech Republic) and will probably continue to do so. In addition the region has several ski resorts.

Old towns such as Kezmarok and Tara Lubovna retain often attractive historic centres but often have large apartment block estates on the outskirts. The region is also reputed for its mineral springs – the Empress Maria Theresa had them enumerated in the eighteenth century and there are a number of spas such as Bardejov.

Whether these attractions add up to a strong likelihood of a property boom in Eastern Slovakia is dubious. The country’s per capita GDP was almost $18,000 in 2006 (up from $12,840 in 2002) but living standards are higher in the relatively more prosperous and developed west of the country with people in Eastern Slovakia only achieving incomes of about one third those enjoyed in Bratislava. The eastern areas suffer from poor transport links and although road improvements are being made the region’s economy is going to be heavily dependent on rising living standards in neighbouring countries (eg. Poland and Hungary) and greater accessibility.

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Nicolas Sarkozy

The answer is probably that it is too soon to tell. In particular, the fulfilment of Nicolas Sarkozy’s plans for the French economy are contingent upon the election of cooperative National Assembly in the June elections.

There has been considerable attention to the introduction of tax breaks on interest payments for mortgages for first homes (main residences). Of course, this will only directly benefit a the minority of foreign owners of French property for whom France is their main place of residence. Also, the impact on property prices will be felt most strongly in well populated areas rather than the sequestered locations that overseas investors favour for second homes. However, resort areas should join in the overall benefit of the change.

President Sarkozy is also planning a reform of French inheritance tax with the intended effect of removing all but the wealthy from its grasp. This is likely to cause some French people to consider trading up the property ladder more favourably.

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Speculators from Wenzhou who contributed to the hike in real estate prices in China’s large cities, are moving their money to Malaysia.
A tour group is departing from Wenzhou for Kuala Lumpur and Genting on Friday. With most of the members being entrepreneurs and professional investors, the group looks like it will be doing more scouting property than sight-seeing.

Wenzhou is located in coastal Zhejiang Province, the richest area on the Chinese mainland, and many of the people there accumulated their wealth from manufacturing clothes and commodities such as lighters and drinking straws. They have invested in many cities across the country. Many have bought hundreds of apartments, spending tens of millions yuan. A few residential developments in Shanghai were bought in wholesale, such as The Xiangmei Garden and The Shimao Riverside Garden.

This time, the investors are going to Malaysia for their first overseas purchases because of the high return on investment, the Malaysian government invites of foreign investment and the convenience of getting there from China.

The winners: Singapore, South Korea and the Philippines

Singapore experienced Asia’s highest residential property price increases during 2006, with 9.5% real (inflation-adjusted) house price rises.

There were also 9.3% real house price increases in South Korea, and 9.1% real house price increases in the Philippines. These were seen in the Global Property Guide House Price Indices, the biggest collection of residential property price indices.

Singapore’s strong 2006 GDP growth rate, at 7.9%, pushed up demand for Singapore property. The Urban Redevelopment Authority (URA) private residential property price index rose by 10% (9.5% in real terms) in 2006.

 

 

ANNUAL HOUSE PRICE CHANGE (%)

South Korea also saw a strong rebound in property prices, despite continued efforts by the government to depress the market. The Kookmin Bank’s house price index rose 11.6% in Dec. 2006 (9.3% in real terms) from a year earlier.

In the Philippines, strong economic growth and reduced inflation contributed to the continued recovery of the real estate sector. In addition, demand from Overseas Filipino Workers (OFWs) and dual citizens has been strong, pushing prices up. Luxury condominium prices in the Philippines rose 15% (9% in real terms) in 2006, following an 11% nominal price rise in 2005, according to Colliers International.

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We all know about the tropical climate and the locals’ penchant for carnival – Brazil, after all, is one of the world’s most glamorous, exotic destinations. But recently, the visitors have shown a desire for more than just a week in a hotel – they’re eyeing up the property market, too, and the trend has spread so fast that even the country’s most famous son, Pele, is getting in on the act.

None of this is accidental. Back in 2003, the Brazilian government decided one way to save the country’s weakened economy was to encourage tourism. They set out a plan to attract around nine million visitors each year and began improving coastal resorts and infrastructure in key areas, such as Natal on the north-east coast.

The plan succeeded and the number of tourists rocketed. But what the ministers may not have foreseen was quite how many visitors would be so blown away by the country’s fabulous beaches, friendly locals and low-cost, laid-back lifestyle that they’d choose to buy property there.

From the UK, it takes around eight hours longer to fly to north-east Brazil than it does to Spain or Portugal, but British buyers are beginning to flock in, and property that a few years ago was selling for less than £20,000 has more than doubled in value. In fact, the area’s become such a magnet for overseas investors that even legendary footballer Pele is getting involved. He recently helped launch King’s Flat, a development of 32 luxury, beachfront apartments at popular Ponta Negra beach, on a plot of land he was given after helping to win the 1970 World Cup.