Investing abroad

, published on July 2, 2018

Purchasing a pied-à-terre in Portugal, investing in a villa in Mauritius or enjoying tax benefits in Luxembourg ….Let’s take a closer look at some of the most fashionable international destinations.

Although the French market has been regaining momentum for some time now, and particularly since the Presidential election, certain constraints – both administrative and tax-related - continue to affect investment; hence the desire to find out if the grass is greener, and life more prosperous, elsewhere. Quite a number of French citizens have already invested abroad. Others are still on the lookout for a politically, socially stable country with sun, high rental demand and a less punitive tax regime than France. Below we explore a number of international investment projects that meet these criteria.

A pied-a-terre in Lisbon

Madonna has finally discovered her very own garden of Eden in Lisbon, where she is on the lookout for a large family home. Other VIPs have already chosen to set up home in the Portuguese capital and Portugal, including Florent Pagny and Monica Bellucci, to name just a few. On average, one in four foreign investors is French, which is hardly surprising given the country’s great weather and the favourable tax arrangements granted by the Portuguese government. A French, retired, private sector worker who has opted to be taxed as a Portuguese resident is exempt from paying tax on his pension for ten years. High value-added professionals such as artists, intellectuals and architects benefit from a low taxation rate of 15% and occasional tax exemption. In addition, there are no restrictions on short-term holiday rentals unlike Berlin or Paris which restrict the number of overnight stays. Or Barcelona where you need an operating licence. “In Lisbon, there are no restrictions on the holiday rental market, compared to France where, after the terror attacks, everyone was competing for a slice of the action,” observes René Riu, director of Infante & Riu agency. “So much so, in fact, that if there weren’t any holiday rentals, Lisbon wouldn’t have enough tourist accommodation!” In the meantime, the number of seasonal tourism platforms is flourishing.

In this city, where annual tourism rates show double digit growth, the average occupancy rate is 85%, higher than in the Algarve where the tourist season only lasts a few months, unlike Lisbon which enjoys all-year-round tourism. There are two options open to investors. They can either purchase an old, run-of-the-mill property, refurbish and decorate it, and make a gross profit of 8-10%, or buy a flat in a new complex with a return in the region of 4%, guaranteed by the developer over the next five years. So the profit is smaller but assured.

In addition to the basic rental yield, in the mid-term, investors can also expect to make a substantial profit from property sales as prices have increased by 20% in two years. And this may well be just the start. Well-designed, new builds, such as Aurea 72, in the Baixa district, in the city centre, are available for purchase. A furnished, equipped, two room flat, with luxury fixtures and fittings, suitable for immediate rental, with 3% guaranteed rental yield over five years, comes in at €500,000. Maison au Portugal has a great development in le Chaido. Two-room flats go for €380,000 with a guaranteed return of 4% over three years, and variable rates thereafter. Existing properties also have great rental appeal like this renovated, equipped, furnished studio with terrace for €140,000 – a gem of a property in the Alfama district, the place to be in Lisbon if you are a young tourist, looking for a holiday rental.

However, there are some burning questions to answer: shouldn’t we be worried about the market over-heating? Isn’t it forming a bubble which, when burst, will result in a sharp drop in prices. René Riu responds very firmly in the negative: “Prices in Lisbon are on the up because demand clearly outstrips supply. You can’t compare this situation with the run-up to the Spanish crisis when investments were funded by 100% mortgages and buyers bought properties for which they had no use only to sell them two years later. It was pure speculation on their part.” This opinion is consistent with the conclusions reached by the IMF in their study on global housing markets: “Very often net price rises are not the result of high credit demand but rather due to supply constraints, unlike the period of growth during the 2000s.” Furthermore, according to the study, policies are now more attuned to market upheavals and the “days when price surges were regarded with a benign indifference are over.” Thus, the European Systemic Risk Board (ESRB) has just warned eight countries about vulnerabilities in the real estate sector. They are: Austria, Belgium, Denmark, Finland, Luxembourg, Netherlands, UK and Sweden.

New property in Luxembourg

Property prices in the “Grand” Duchy of Luxembourg -  an oasis of calm with great jobs, in the heart of Europe - have been rising impressively for the last twenty years. Last year, property values rose sharply, reaching 7.7%, a level almost comparable to current market prices in Paris (+9%). Prices vary considerably between districts and localities. In the new build housing market, for example, Luxembourg City (the capital) has the highest recorded prices, between €6,000 and €9,000 /m2, and high-end projects are reaching a peak of €14,000-€15,000 /m2. However, just a dozen kilometres or so from the centre, prices drop to €4,500 – €5,000 /m2.

This climate of high property prices favours the buy-to-let investment market as there is a rich seam of available tenants, both professionals working on short term contracts and first-time buyers who, unfortunately, lack the financial resources to become home owners, according to Eric De Prince, general manager of Von Poll in Luxembourg. Irrespective of the sum invested, rental yield is quite low, around 2.5 – 3% gross but the capital gains, which are generally around 5% a year, more than make up for it. A flat worth €200,000 will be worth €210,000 within just one year!” And on top of this there is a significant tax incentive on new builds: a tax depreciation rate of 6% per year for the first six years of ownership.

New build programmes, consisting of small, well located, buy-to-let properties are on sale in the Kirchberg plateau district, a new part of the city. In Gasperich, an equivalent district, on the other side of Luxembourg, cranes are also hard at work, building a mixed development with educational facilities – a great place to live. In more traditional, attractive neighbourhoods such as Limpertsberg and Belair, new buildings are often reconstructed and converted from older buildings. There is a buoyant market in old properties boosted by wealthy townhouses.

A luxury villa in Mauritius

The Mauritian market has improved significantly since the government allowed investors to purchase freehold property on the island. There have been two thousand purchases made by foreigners. Three hundred new contracts have been signed every year over the last two years, 60% of which were in excess of $500,000, the threshold for obtaining the “sesame”: the Mauritian residence permit. The investors’ site of choice is the large, private estate, approved by the state and developed by private property specialists, like the ENL group. The long-term, buy-to-let investment is, generally speaking, still the norm. Heritage Villas Valriche, one of ENL’s estates, offers a range of luxury villas in excess of €700,000 in excellent locations, on the edge of a golf course. The estate is vast, extending over 2,500 hectares with tropical vegetation and lush gardens. The occupancy rate for buy-to-let villas is up to 50%. “The increase in value, between purchase and resale, usually reaches 30% but rental yield is only 2% per year as the villas are worth several million,” admits Mickael Le Luron, marketing director for ENL.

La Balise Marina is another ENL development with villas and split-level apartments located right on the water’s edge, along a canal leading to a lagoon. “The low rate of resale makes it difficult to estimate the increase in value, which is roughly around 8% per year” continues Mickael Le Luron. “Renting gives a return of 3-4% per year. They’ve just introduced furnished flats which should be attractive for short-term rentals.” The properties are still high-end with a similar starting price of €650,000! The third development has nothing to do with the previous two. In this case, ENL is developing a Smart City in Moka which in the space of ten years has gone from the status of village to modern town. Moka is the group’s “birthplace” and location of its headquarters. Properties here are much smaller than on the estates, with much lower, €100,000 starting prices. The rental yield rises to 6% per year. In ten years, the plots have tripled in value. The island’s great advantage remains its tax system: everything is taxed at 15%, starting with capital gains tax and tax on rental income. And there is no inheritance tax.

A rental property in Grand Baie

In the Mauritian tourist capital, the thermometer registers 20-25°C in November. This northern region, which extends over a considerable area, consists of some urban development together with a peaceful lagoon, near-deserted beaches and unspoilt coves which provide a welcome contrast. “Our developments are mostly concentrated within this very exclusive area” observes Johanna de Robillard, in charge of marketing for 2Futures. “The best investment would be a buy-to-let, long-term investment, ideally for at least a year, for example a 120 m2, 2-bedroom flat. A property of this type would cost €400,000.”

The developers are currently launching their Ki Resort development, a complex near Pereybere beach, with apartments starting at €250,000. “Our developments generally achieve occupancy rates of 60% and easily produce a 4.5-5% rental yield,” continues Johanna. The company offers a standard real estate package for owners who would rather not spend time managing or furnishing their rental properties. And depending on the services they choose, the bill can amount to €50,000 Euros.

Full Ownership : Essential !

Serious property investors target the United States and Canada because of the appreciation in property value but also because of the great business and entrepreneurial opportunities available in both countries. Berlin is catching up and rental demand from young expats is exceeding even the most optimistic forecasts. Prenzlauer Berg, a trendy district which has a distinct, Parisian “village” feel, occupies the lower end of the price bracket with properties selling for €2,000 – €3,500 /m2.

Competition is even fiercer in tourist capitals in former Eastern bloc countries, such as Prague and Budapest. There are no restrictions on the number of furnished holiday rentals in these counties. Budapest, for example, has two million residents and is visited by more than four million tourists every year. Average prices are around €1,500/m2 and can fall to €1,000 if the property needs renovating. “These up-and-coming cities are now a sound investment”, reports Sylvain de Munter, executive director of the international real estate network, Keller Williams. “In the past, they were comparable to Morocco, at a time when you’d buy a riad without really knowing who all the owners were! When you invest abroad, a minimum requirement is sole ownership and complete transparency.”