Sunday, August 29, 2010

Can journalists 'talk up' property markets?

An astonishing report in the Irish press tells of a goup of overseas property investors who are contemplating suing property journalists, claiming that their upbeat descriptions of variour property investment opportunities abroad caused them to lose money, when property prices subsequently collapsed. Among the markets cited in this context are many former Eastern communist countries that have recently become independent and in some cases joined the European Union, and areas such as Florida, Dubai and the Spanish Costas. Speculative investments became popular during the 1990s and reached a peak in 2002, only to collapse a few years later leaving investors facing heavy losses.

Whatever the outcome of any proposed legal actions, a number of lessons can be learned, among them the need to check and double check any proposed investment opportunity, particularly in newly developing and largely untried areas, and particularly if the prospect is offered of more than average returns from rental income.

Regrettably, property buyers are often dangerously casual about about their investments, as has been witnessed in France during the mini-boom in investment properties destined for rental, under various government tax saving schemes (Robien, Borloo etc). Anecdotal evidence suggests that more than 50% of 'investors' failed to actually visit the area and the property they were buying within France, to verify if the rental levels promised by developers were actually achievable.

What many found to their cost was that many buy-to-let properties had been built in unsuitable locaations, remote from towns and centres of employment, and lacked basic facilities such as nurseries, schools, shops, and public transport - all major deterrents to prospective renters on low incomes, to whom these properties were primarily addressed.

When they finally woke up to the reality of nil or reduced rental income from their investment, many buyers found that their properties were often badly constructed, largely unlettable and in many cases unsaleable. Many have since been heavily discounted and sold, often by the original developers.

Buying French property rarely promises high short-term profits and should only be considered as a long-term investment. Rental income is unlikely ever to contribute more than half of the monthly mortgage repayments, with French banks insisting that loans on based on your ability to repay rather than on the notional value of your investment.