Property Investment In City Centres

City Centre Investments

Many purchasers opt for holiday resort style property when buying overseas and rely on the familiar tourist trade to fuel their investment. However, if you are not a nature or beach lover, or you dislike the thought of local village life with gossip and twitching curtains, a more urban option can prove equally profitable and could well be the answer you are looking for.

Political And Economic Recovery

Many emerging markets have suffered the economic effects of past political circumstances such as Communism, military dictatorship and economic gloom, which are factors in establishing the right climate for investment. Economic recovery is a major part of the success story of any emerging market and the discerning investor is quick to identify such a climate and invest as the country's recovery gathers steam. A full study of improvements to the infrastructure of the country and political and economic conditions is obviously essential to evaluating the suitability of your market. Once identified, many investors are encouraged to discover the city centres of East European countries such as Poland, Hungary, Turkey as well as China are some such locations on the brink of an economic growth spurt.

A key driver to economic growth is foreign investment fuelled by the prospect of EU membership for some countries, while others are enjoying boom years due to other internal economic factors such as foreign investment incentives and tax benefits. Today, many large multinational companies are gradually establishing a presence in emerging low cost cities due to much lower overheads than in their countries of origin, a good infrastructure and an educated local workforce. These factors have instigated a new trend towards foreign investment in both the commercial and residential property markets of major cities worldwide.

Young Professionals

Demographically, while literacy and education levels within these emerging countries have never been greater, the number of young professionals moving to the city is on a sharp incline and they are supplying a new demand for trained local workforce to work within a new business environment. In turn, the ready supply of young, trendy professionals is fuelling an often failing supply of new residential and commercial property within the city centres. Demand for urban land and apartments has never been stronger, a trend seemingly set to continue in line with economic growth. This is good news to many investors who are acting now to supply a demand for accommodation in prime city locations, while prices continue to be driven upwards.

IPIN City Property Investment Locations

Warsaw

The residential property market in Warsaw is the largest and most dynamic in Poland. Strong demand for accommodation and commercial space has recently fuelled significant investment growth in Warsaw's property market, which currently stands at between 5 and 15% dependent upon the chosen property.

Following Poland's accession to the European Union, foreign investors have confidently bought increasing amounts of property in Warsaw, while the next property boom is due during 2007, prior to the planned VAT increase to 22% on the sale of residential property. Although the residential market is dominated by local developers, foreign investment from German, Israeli, Irish and Spanish developers is on the increase.

In 2005, construction began on 10,300 units, representing an annual 23% increase in new construction. Most development is taking place on the left bank in Warsaw and 45% of this construction is concentrated in the districts of Mokotów, Ursynów and Bemowo, while the right bank districts of Bialoleka, Targówek and Praga Poludnie are also receiving increased attention from potential buyers.

Krakow

After Warsaw, Krakow is the second busiest residential property market in Poland.

Intensive building has been taking place over the past few years on the west side of the town, in areas such as Debniki and Lagiewniki. The Pradnik Bialy and Bronowice districts
in north-western Krakow are also developing at a dynamic pace, constructing some 25% of all units currently under construction in the city. The most popular areas today are in located in Ursynów, Bialoleka and Mokotów.

The market is largely dominated by local developers while some foreign investors have begun buying up sites for residential developments and apartments for bulk purchases. Demand for housing is on the increase and attractive units in prime locations are selling fast at early stages of construction. One and two bedroom apartments of approximately 50m2 within small developments are currently the most sought after by local professionals, eager to purchase a home near to their place of work. Krakow real estate is also an attractive option for foreign investors selling to the local workforce, taking advantage of tax incentives in the “Special Economic Zone”.

Following Poland's accession to the European Union in May 2004, foreign purchasers have been on the increase in Krakow and, due to the fact that supply is currently unable to keep up with demand, prices are creeping upwards and investment growth potential is high. Shrewd investors from Spain, Israel, Ireland and the UK have been purchasing packages of 20 to 50 units in one development and making the most of the growth figures to be gained.

Budapest

Hungary forms a strategic gateway between Western Europe and the developing East, and includes advanced transportation routes between Western Europe and the Balkan Penninsula, and from the Ukraine to the Mediterranean basin. The government continues to invest in infrastructure improvements, including transportation upgrades, technology, financial and business services, and education.

The investment climate in Budapest city is turning the heads of many property investors today. Economic growth in Budapest is many times greater than that of Hungary at large and 60% of all foreign capital invested in Hungary is received in Budapest. The city has emerged as the key financial and commercial centre of Central Europe causing investor appetite to remain very strong while it is currently fuelled by the prospects of rental growth within the office market. Companies that have already established regional service centres in Budapest include General Electric, Nokia, General Motors, Sykes, Avis, Philips Alcoa, and EDS. With a multilingual, educated, skilled and motivated workforce, Budapest continues to attract growing investment from foreign companies, all of whom need land, premises and accommodation for their enterprise.

Investors are already experiencing very high returns on capital and in some districts annual growth is in the range of 9 to15%. In line with local demand, returns are typically greater with newly built and off-plan properties. Property prices in Budapest remain far below the EU average, particularly when comparing to other major cities. 1 bedroom apartments start at £30,000 (EUR 45,000) and 2 bedroom apartments at £53,000 (EUR 79,000).

In addition, investors benefit from the lowest corporate tax rate in continental Europe at 16%, plus significant tax allowances. Benefits of EU membership include simplified customs administration, stress free cross-border movement and transparency in legal and tax systems. Hungary has also negotiated a number of free trade agreements beyond EU borders.

The Economist Intelligence Unit (EIU), one of the world's largest banking analyst organisations, has ranked Budapest as the top place to live among newly entered EU cities.

Istanbul

Last year's shrewd investors have reaped returns of some 85% from their property investments in Istanbul and according to expert analysts, this trend is set to continue, while Istanbul property in 2006 is predicted to net up to 120% gains. Istanbul today positively exudes anticipation and excitement for property investors.

The Istanbul residential and commercial property markets are undergoing almost unprecedented growth. Since 2005 foreign ownership of property in Turkey is now completely open and the laws protecting property ownership rights have been tightened, allowing investor confidence to be rekindled after a period of some uncertainty. Turkey's promise as a future EU member has encouraged an immediate surge of overseas investors, particularly within the commercial property market in Istanbul - Ikea opened a store in Istanbul in 2005 and has been followed this year by Harvey Nichols. Currently the amount of retail space available in Istanbul city is far below demand levels, translating into a strong opportunity for timely investors into the retail property market.

The residential property market in Istanbul is fuelled by tourism and a healthy commercial climate. The city remains a definite tourist trap due to the vast number of attractions the city has to offer. As a result, budget airlines such as Easyjet link Istanbul to the rest of Europe, bringing with them increased numbers of visitors. Property investors are purchasing and renovating properties suitable for holiday lets in the most fashionable areas of the city. Istanbul is also attracting professional migration as many international companies are investing in the city following Turkey's move towards EU accession. In fact a record number of businesses are establishing bases in Istanbul, all requiring professional staff who, in turn, seek quality new accommodation to buy and rent.

Increased demand in both the commercial and residential sectors are feeding rental yields and pushing up prices fast.

Shanghai

Shanghai is one of the world's most successful cities in terms of trade and finance, ranking amongst the likes of world leaders New York, Tokyo and London. Until now however it has remained relatively undiscovered by property investors.

The Chinese government is actively encouraging foreign investment and has recently relaxed the mortgage market and policies on foreign ownership of property. 70% mortgages for property in Shanghai are available as well as 70 year leases for foreign property purchasers.

Property in central Shanghai is currently seeing excellent capital growth of upwards of 20% and is now attracting growing interest amongst both private individuals and corporate markets. Foreign investment into China has increased in recent years and literally thousands of international enterprises, including the World Trade Organisation, have established regional headquarters in Shanghai as a direct result of the city's growth in significance in the worldwide financial sectors. A resulting need for top quality commercial space and residential property is fuelling a fresh demand for newly built property which far outstrips current supply. The market includes office, serviced apartments and hotels, and many international institutions have already started pouring millions of dollars into Shanghai.

Compared to cities of the same caliber, property prices in Shanghai are incredibly low. Today potential for capital growth in the right market is strong and investors are buying up now before prices soar.

The World Expo is due to take place in Shanghai in 2010 and will doubtless attract an increased amount of global attention to the city, catapulting it further to the forefront of international finance centres.

IPIN will shortly be releasing Investment Opportunities in these areas. Please consult with an IPIN advisor for further information