Hot property prospects

DULL, but sustainable growth of around 2.5% is forecast for the UK housing market in 2006, according to new report from estate agent Knight Frank. For property investors, growth at this rate will see their portfolios barely tracking inflation. So, where should they be looking to outperform the market?

With fears of oversupply in many towns and cities throughout the UK, some prime city centre's will under perform in 2006 as a glut of apartments more than satisfies short-term demand, predicts Knight Frank. But, there is room for growth in towns and cities in the north and the Midlands, along the south coast, in prime central London and student accommodation, it says.

European housing prospects in 2006

After strong capital appreciation for much of the past decade, western Europe’s housing markets are experiencing slower growth, particularly those which have seen the highest sustained price rises over the past few years. These include Spain, France and Ireland, which have all experienced double- digit house price inflation.

The strongest growth over the past 12 months has been recorded in the new EU member states, including the former eastern block. With underlying economic and financial conditions remaining solid, house prices in most European countries are expected to increase in 2006, although at a slower rate than in 2005, with a few notable exceptions.

Southern Cyprus is hotly tipped by Stuart Law of Investment Specialists Assetz Property Management. With deposit levels falling to just 15% in many areas and Swiss Franc mortgages available at 3.25%, borrowing is now more affordable. Other factors likely to push up house prices include the redevelopment of Larnaca & Paphos airport and entry to the euro in 2007/8, a year-round rental market and rental yields of 8-9%.

Bulgaria is expected to continue proving lucrative as an investment into 2006, with ski resorts boasting year-round rental and rental yields up to 12%, double those in the coastal resorts. With a low cost of living and more cheap flights from the UK, Bulgaria offers a cheaper alternative to ski-areas in France and Switzerland. But, the resale market is not guaranteed and investors should exercise caution, warns Law.

Growth is forecast in the Languedoc region of the south of France, which is currently considered undervalued. It is becoming more accessible with new low-cost flight routes to the area, which is likely to drive up house prices. The French leaseback scheme is expected to remain popular with domestic investors following the introduction of interest only mortgages. Greece is also expected to move away from the starting block in 2006 as reports suggest house price growth is beginning again.

Euro property hotspots

Cote d’Azur: As always, remains a prime European location for top-end buyers.

Languedoc: Undervalued, yet highly accessible region, house prices are expected to move up.

Southern Cyprus: New airport in Larnaca & Paphos likely to push up tourism and house prices. Year-round letting with high rental yields. Transparent legal system, similar to the UK.

Greece: House prices expected to take off.

Greek Islands: Still some islands yet to be developed.

Paris: Strong tenant demand – supply shortages.

Sicily: Undeveloped market about to be discovered.

Turkey: Relatively cheap and expected fillip from EU membership.

Tuscany: No inheritance tax, nor capital gains tax after five years ownership.

Bulgaria: Scope for investment in the capital and mountains.

Poland: Buy-to-let in Warsaw and Krakow.

Croatia: Good prospects for investment in many coastal areas and islands, but don’t pay over the top.

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