Russians helping to ease the pain of overseas property investors

I dread to think how much money has left this country over the last few years spent on overseas property; a lot of it never to return.

There are now many problems with stalled developments that Irish people have invested in right across the globe. I am currently supporting the Dublin legal firm Anthony Joyce & Co on six different cases. In a lot of instances the developers didn’t sell enough of the properties to finish the developments, but have spent the money paid by the initial investors.

Where people have been lucky enough to get their hands on finished property the values are now much lower than they were during their boom. If people bought early enough, say pre-2005 and in some cases 2006, then they can still make a profit because some markets we climbing by such large amounts that even with a 50% reduction they are still above what investors will have paid.

The problem came with the people that were late to the sector and paid peak prices. Their problems are compounded by the fact that a lot people remortgaged their primary residence in Ireland many off whom are not left paying very large mortgages in Ireland, that are in negative equity and which we used to pay of an overpriced overseas property that is now well below it’s peak. They effectively have two or properties that are in negative equity.

Whilst most agents who sold overseas property have gone bankrupt or run off with their high commission before the investors come after them, one company [disclosure: they are a client of Republic] is turning the overseas property market on it’s head and helping investor sell on their properties.

Appreciating Assets started by developing commercial sites along European Strategic Corridors in Eastern European countries like Bulgaria. Here they made good contacts with the no-nonsense down to earth way of doing business and struck up some long term partnerships.

The Russians have always been keen to do business and pleasure in former Eastern Bloc countries like Bulgaria. During the boom it was the Irish and British investor that we dominant on the Black Sea and in the ski resorts, but as the economies in their countries waned so demand from Russia remained strong.

But, there was problem, Russian property investors don’t buy off-plan and most of the recently built properties were owned by Irish and British investors. Whilst they Bulgarian businesses had good contacts with Russia they had little or no existing contacts in Ireland and the UK. This is where Appreciating Assets were asked to step in, their Bulgarian contacts needed them to help target Irish and UK property investors who wanted to sell their property. This is a niche that they have successfully turned their sights on and in the past 18th months have helped over 230 property owners sell their properties to Russian buyers.

Now they are expanding. They have asked if they can also provide properties to Russian buyers in the more upmarket locations in Western Europe where Russian investors are now buying. Seafront properties are very popular Russians who are very prominent prestige buyers on the Costa Del Sol and Côte d’Azur, as well as the French Alps.

So Appreciating Assets have now expanded their services to property owners in France and Spain, two countries where Irish and British property buyers were prolific during the boom.

It is rare to see a property investment company expanding during a property slump, but the reality is that their niche market is actually booming. This is because the downturn and financial pressure at home has meant so many people need to sell their properties. When times are tight that house in sun can look like an expensive luxury and most people bought the property as an investment anyway with the intention of selling.

If investors want to sell their overseas property then an exit strategy is key. By exit strategy I mean how the property is going to be sold. There is little point trying to sell it to Irish investors because they simply aren’t buying, so investors need to look to countries that are still expanding and where affluence is still increasing, such as Russia and use companies that have a track record of dealing with people there.

The good thing about Russia is that it hasn’t fallen into recession and the outlook looks good. There is a lot of talk these days about the investment markets focusing on the BRIC countries, and Russia is one of these; the others are Brazil, India and China. The IMF backs this up and forecasts that Russia will be the second largest economy in Europe within three years; second only to Germany.

So if you have any overseas property that you want to sell in France, Spain or Bulgaria then sell it to the Russians by contacting Appreciating Assets – please click here fore details.

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Want to sell your overseas investment property? Then establishing an exit strategy is key.

This is guest post by Dylan Cullen, Managing Director of Dublin based investment firm Appreciating Assets Ltd. Appreciating Assets specialises in helping Irish and UK overseas property investors market and sell their properties to Russian investors.

This article also appeared in the July 2010 issue of You And Your Money the Irish personal finance magazine.

During the Celtic Tiger, developers from all over the world marketed and sold property to Irish investors. As a result it seems as if we paid for half the buildings in Eastern Europe.

In previous generations we would have had Irish workers doing the actual building but, in recent years, with the cheap credit we had access to, we were happy to pay other people to do the building and just wanted to enjoy the end product.

The problem for many Irish overseas property investors is how they purchased their property and the issues that are now affecting them at home.

The boom in the Irish overseas property sector investment market grew as a result of the increasing property prices in Ireland. The Irish banks were flush with cheap money from the ECB, but viewed saw overseas property as too risky, so they refused mortgages to give mortgages on foreign properties.

Instead they saw that Irish people had a lot of equity built up in their Irish properties, and preferred the investors to risk this equity by encouraging them to release that equity via equity release loans, which used the existing property to guarantee the equity that was released. This allowed owners of Irish property to add the cost of a foreign property on to the value of an existing Irish mortgage, which in many instances was the investor’s main home.

These loans were granted freely to Irish homeowners are much cheaper interest rates than could achieved in the country of choice. For instance in Bulgaria interest rates were 12-14% during the boom, whereas they were as low as 2% in Ireland.

This is has led to a double jeopardy for investors with their Irish properties and their foreign properties both reducing in value whilst some investors are effectively having to finance mortgages on two or more properties. There are many reasons why this is proving more difficult in the current market, reduced wages, higher interest rates and lower yields. With interest rates expected to rise in Ireland it is important for Irish investors to protect their credit rating in here because this could cause many more problems in the future, especially with restricted approval procedures in the banks.

With any investment an exit strategy is vital, when it comes to selling an overseas investment property an exit strategy means how you are going to sell the property and who you are going to sell it to. The problem is few investors have a realistic ‘exit strategy’ and there are few options out there. In some emerging markets, such as Bulgaria, there isn’t even an established second hand market in which to sell the property.

Without an exit strategy there is no way to recoup the return on your investment. Many people bought overseas property investments with little thought for their exit strategy i.e. how they were going to sell their property. With many people assuming that they would be able to either sell to another Irish investor or local property buyer. This is now rarely possible

The new market conditions mean that there are fewer options left to those investors wanting to sell their property, there are very few Irish and British buyers out there and the many local economies have taken as much of a hit as ours as. The remaining investors that are out there are often from countries to which Irish buyers have little or no existing links, such as Russia, which is part of what are called the ‘BRIC countries’ i.e. Brazil Russia India and China; these are the countries with economies that are estimated to grow the most over the next ten years.

Now Ireland is dead financially all the money men are turning their focus towards the BRIC countries. For most Europeans, Russia is the natural market to target, indeed the IMF has forecast that by 2013 Russia will be the second largest economy in Europe in terms of purchasing power.

The Russian economy is faring much better during the credit crunch than any other European country. With Russians continuing to holiday around Europe they are now some of the biggest buyers of overseas property and one of the largest customer bases that Irish owners of overseas property should be targeting if they want to sell their property.

We started developing commercial property investments Bulgaria at the turn of the century. A few years ago our contacts there asked us to help them source residential property for their Russian clients. The problem was simple, most of the new build property was owned by Irish and British investors, and to a lesser extent the Dutch and Scandinavians, but the Russian agents had no links to these investors. So they needed some way to bring the two sides together, which what we have done successfully for the past few years. Since the beginning of last year we have been helping Irish investors sell their properties to Russian investors, selling over 225 units.

The situation is very similar in many other parts of the world with huge amounts of property owned by Irish and British investors. As a result we recently expanded to include other Russian hotspots in Europe where Irish people bought en mass: Bulgaria, Spain, Portugal, and the Adriatic namely Croatia and Montenegro.

Different countries will have different demands. It may that where you bought the demand is coming from German, American or Arab investors. The key is establishing your exit strategy: who is you target market? How are you going to target them? And how much will pay you for your investment?

By Dylan Cullen, Appreciating Assets www.appreciatingasset.ie

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