This article is taken from Merryn Somerset Webb’s free weekly personal finance email, MoneySense. Click here to sign up now: MoneySense
You don’t often come across celebrities saying sensible things about the property market in the papers, so hats off to Anna Chancellor, interviewed this week in the Mail on Sunday. She’s distressed by the way that houses have become “not just somewhere you live and bring up your kids” but also a “massive investment” and she isn’t sure “in an ideal world that the two should be so heavily combined.”
She’s right of course. Over the last few years any sense that a house is more a home than anything else has vanished. Instead houses – or “properties” as we now call them – are investments. People buy houses in areas they don’t want to live in because they are ‘up and coming’ and therefore might turn out to be a better investment. They buy houses and then do them up like show homes (there was actually an article in one of last week’s papers headlined ‘How to make your house look like a show home”) with the idea that this will make them worth more. Whether it makes them nice to live in is by the by. They sell on house after house without ever making a home. Then they bore the rest of us by talking about it endlessly on the TV, in the newspapers and in every pub the length of the country.
So deeply ingrained is the new idea that a house is a moneymaker not a home that property presenters regularly tell people that they don’t have to like their first homes. It is, they are told, not about where or how they want to live, but about making money (this is why everyone is always so shocked when you tell them you rent your house because as its cheaper to rent these days you get to live somewhere nicer by doing so).
I had this in my mind this week when I was reading yet another pitch in a Sunday paper about buying in Bulgaria. I can’t understand why you’d buy a house in the UK that you didn’t much want to live in but I understand even less why you would buy one abroad that you didn’t even much want to holiday in. But that is exactly what the property media appears to still be urging us to do.
If you can’t afford to buy at home they say, buy in Bulgaria, Dubai, Montenegro or Mongolia instead. Whatever you get will go up in price and next thing you know you’ll be able to sell it for a mini fortune and use the cash to buy in Britain. For those who already own a ‘property’ in the UK the idea is sold in a different way – owning a house abroad is a natural extension to the domestic buy to let business, and now the UK market is looking a bit iffy, it’s a better business too. You get a holiday home (hooray!) but even better you get to be on another country’s property ladder as well as your own and that, or so the story goes, means free money.
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Or does it? House prices in the UK are so high (for now) that the rest of world looks practically free to us: you can get 10 flats in Bansko for the price of a one bed flat in Balham. But much of ‘abroad’ is cheap for a reason. I’ve written about my dismal holiday in Montenegro before so suffice it to say here that thanks to corrupt police, nasty food, aggressive locals and filthy hotels it wasn’t one of my best breaks ever. It may be true that you can buy a beachfront villa in Montenegro for the cost of a garage in Clapham and I know some people adore Montenegro but, given the choice, I’d rather holiday in Clapham. So it makes complete sense to me that Montenegrin houses are cheaper than houses in the UK – and that they should stay that way.
Same with Bulgaria. This weekend’s article told us all the same things we’ve been told a million times before. That the deals on offer now are extraordinary, that we should rush in to take advantage of win-win opportunities on the Black Sea coast or in the nation’s developing ski resorts. Buy them, rent them out, make a fortune. The problem is that it already hasn’t quite worked out like that. Instead rental returns are hopeless – if you can rent your property out at all – and oversupply means that huge numbers of properties not only aren’t making capital gains but are often worth less than they were bought for. Much of Bulgaria has turned into one great big building site. And, from what I gather, not a very efficient one either.
Buying at home is hard and buying abroad is harder: you need to know what you are doing, you need to go into it with cash in your pocket rather than expecting it to make you rich, you need to have a good lawyer and to read all the small print in the contract, and you need to be prepared for all sorts of difficulties you have never thought of to turn up. Remember for example that in Eastern Europe the rules still aren’t the same as they are in the West. The level of legal protection available to the consumer is different; corruption is common; wars have muddled ownership issues, so buyers often find themselves caught up in endless battles over title; building standards can be poor; and differing tax and inheritance laws can make things very confusing to say nothing of expensive.
Finally, it is worth noting that buying a property abroad, wherever it is, comes with all the same difficulties as it does at home – voids, repairs and the like – only in a foreign language. This might all be worth it if you are making piles of money in capital gains. But if you are not it probably isn’t.
The global property bubble is coming to an end (think Spain where prices are still falling all over the Costas and even the biggest developers are scrambling to get out of the market). In the last decade a lot of people have made money owning property abroad. But from now on it’s hard to think that prices are going to go up much anywhere (except in some parts of Asia). That means that owning abroad is more likely to bring boring admin problems than profit – see our section on investing in property for more on the end of the property boom.
And that suggests that we’d all be wise to stop thinking we have to make money out of houses and start thinking about how we can best live in them, both at home and abroad. That means stopping combining holidays with property investing and renting a house – or perhaps even a hotel room – when you go on holiday.
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