Beware the fly-to-let boom


Neil Simpson is a former Personal Finance Journalist of the Year and the author of the Buy-to-Let Investor column in Financial Mail on Sunday. He is a keen property investor and writes about buy-to-let online as well as for a variety of publications including City AM.

Who will be in the lead if the property market really is on the skids and thousands of buy-to-let investors run for the exits? Some say it will be the small time, recently-invested amateur landlord. Others predict that lots of big players are ready to cash in some multi-million pound portfolios. But my gut feeling is that both types of investor are more likely to stay put. Recent investors will probably have spent too much on stamp duty, solicitors, mortgage fees and furniture to want to get out straight away. If they’ve got any sense – and any spare cash – they’ll hold tight and subsidise their properties through a few bad years if necessary. And the big-time, professional investors will just go with the usual ebbs and flows of the market. Lots will sell a lot of units in the coming months, just as they always would have done. Lots may buy a few more. The world will go on turning.

But below the radar it’s clear that one group of property professionals has called time on the market, at least for a while. They are the UK’s big property developers. Go through any of the newspaper property supplements this autumn and it is easy to think that you have picked up the travel section by mistake. There seem to be precious few properties on sale at home. Instead there is page after page of advertising for developments overseas.

It begins with all the traditional developments in the golf belts of Spain and Portugal. Turn a few more pages and you’ll see that Bulgaria’s sun and ski properties and Dubai’s new sky-scrapers are also well represented, just as they have been for some time now. But what’s new are all the other countries. North America and Canada, India, Poland, Hungary, Turkey, St Lucia, the Seychelles, Mauritius, Morocco, the West Indies, The list could – and does – go on. Embarrassingly enough there are plenty of countries I can barely put on the map.

I’m also in the dark about most of the companies behind these glossy developments. But whoever they are it is clear that fly-to-let or buy-to-jet or whatever we want to call it, is the new big thing for optimistic, off-plan investors.

But can these properties ever really beat the kind of growth we get at home?

I’ve always been amazed by the kind of claims that developers and agents are able to make in overseas property adverts. They are the kind of things that have long-since been outlawed in financial adverts in the UK – and rightly so. ‘Earn up to 45 per cent capital appreciation by 2009’ some ads tell us. ‘Up to 400 per cent property value appreciation’ promise others. ‘Guaranteed rental returns of 9 per cent per annum’ is a common claim.

Backing it all up is probably another matter.

For what it’s worth here are just two big worries about these overseas properties. The first is important for anyone who thinks they can make UK-style capital gains on their purchases. The second is for those hoping for a healthy income stream and all those well-advertised rental profits.

THE GROWTH PROBLEM: I’m never convinced that people are comparing like with like when past performance figures are given for property growth. Yes, brand new two bed apartments in Dubai, or Bulgaria or wherever may well be on offer for 15 per cent more today than new apartments were two years ago.

But that doesn’t mean that the flats from 2005 are fetching 15 per cent more in the second hand market. More likely is the fact that second hand apartments are almost impossible to sell with so many shiny new properties vying for buyers’ attention. So take these claims with a real pinch of salt and check the resale market before you start dreaming about big profits. Go online to see what’s available second hand. It could be an eye-opener.

THE INCOME PROBLEM: Don’t underestimate the cost – and hassle – of buying overseas and keeping your property up and running. It’s not just the fees and taxes. Tracking down tradesmen for maintenance is hard enough at home. Doing it from hundreds of miles away is unlikely to be good for our blood pressure or our bank balances. I know a lot of people with summer and ski apartments who say the marketing costs are also much higher than they had expected. Signing on with an agency might be the only way to get enough bookings. But the fees can take away all your rental profits. Once more forewarned is fore-armed.

Go online to check the terms on rental websites – and make some enquiries as if you were a holidaymaker to see how much property choice there is before becoming a holiday landlord. While online it’s also worth noting that unhappy holidaymakers have plenty of places to post unflattering reviews of properties nowadays. Every botched repair or cheap piece of furniture may get showcased somewhere for other potential renters to see. Trying to run a holiday property on the cheap can prove to be a false economy if it turns other clients away. Don’t buy unless you’ve got a war chest of cash put aside so your place can be kept in the best possible condition all year.