Limassol property still cheaper than London

Cheaper to rent but at a lower yield – Limassol most expensive to buy

 

High rewards await property investors in some parts of Europe, according to the Global Property Guide, a residential real estate research organization. Rental yields for apartments in several Eastern European capitals are above 10%, while rental apartments in Limassol are expected to yield annual returns of around 4.38%.

But Limassol’s rental cost of EUR 950 per a 120 sq.m flat is considerably cheap compared to other EU countries.

On the other hand, a recent survey by property expert Antonis Loizou & Associates, placed sale prices of Limassol beachside apartments as the most expensive in Cyprus, going for CYP 3,500 per square metre (EUR 6,020), CYP 500 (EUR 800) more than in Paphos.

Beach homes are selling for twice that rate in Limassol, added Loizou, while Paphos holiday homes range from CYP 4,000 to 5,000 per square metre (if you find any).

Iropnically, down-town Limassol has the cheapest rates of CYP 1,000/sq.m. (EUR 1700) for an apartment and CYP 1200/sq.m. (EUR 2050) for a home.

Rental apartments in Moldova’s capital city Chisinau yield annual rental returns of around 14.13%; in Poland’s capital Warsaw, 13.28%; in Bulgaria’s capital Sofia, 10.56%; and in Slovakia’s capital Bratislava, 10.06%.  The higher risks of Eastern Europe may be a factor in these returns (corruption, political instability, etc).

But risks are not the only factor.

The Global Property Guide (http://www.globalpropertyguide.com) believes that the relatively recent arrival of the market economy, high interest rates, and relatively undeveloped mortgage markets, largely explain the low prices in the east. To illustrate, it would surely be hard to label the historic city of Bratislava, Slovakia, as a high-risk location, yet the rental income returns are excellent.

Western Europe generally suffers from another, different disadvantage: High taxation

There are high rental income returns to be earned in Amsterdam and Paris (8.25% in both), in Munich (7.80%) and Brussels (7.53%). But all four cities are high tax environments (but so too is Poland).

Property in prime Central London returns surprisingly high rental yields, at 7.13%.

Note that this “prime” category encompasses relatively a narrow group of super-luxury apartments in absolutely prime areas (Belgravia, Chelsea, and Knightsbridge).

The high returns in these select super-central locations contrast with the significantly lower rental yields (5.79%) available in Central London’s other luxury areas (Kensington, Bayswater, Notting Hill Gate, St Johns Wood, Highgate, Islington, Highbury, and Primrose Hill).

 

Europe’s most expensive cities

The tiny principality of Monaco is the most expensive location to buy an apartment in Europe at around EUR 24,900 per square metre (sq. m.). Closely on its tail is Prime Central London, where 120 sq. m. super-luxury apartments can cost GBP1,170,000 (EUR 1,742,656) or GBP9,750 (EUR 14,522) per sq. m. Apartments of 120 sq. m. in other luxury areas of Central London are likely to cost GBP580,000 or GBP4,833 per sq. m. (EUR 863,880 or EUR 7,199). The large difference is explained by London’s highly segmented top-end market, with super-luxury apartments in absolutely prime areas commanding considerable premiums.

Paris and Amsterdam follow London. A 120 sq. m. apartment in either of these cities has an average purchase price of EUR 800,000 (EUR 6,667 per sq. m.).

Moscow is Europe’s sixth most expensive capital for buyers of residential property. And though apartments in Moscow can be rather rewarding for buyers in terms of rental income returns, investors should be aware of the high risks (purchases are cash-based, and the authorities can suddenly turn hostile).

Dublin makes an appearance among Europe’s most expensive cities in 10th place, with a high end 120 sq. m. apartment on average costing around EUR 600,000.

The Baltics, till recently Europe’s hottest residential investment destination, are now expensive. A high-end apartment in Central Vilnius, Lithuania will cost on average around EUR 3,792 per sq. m (EUR 455,000 for 120 sq. m.).

Latvia follows closely with high-end apartments in Central Riga costing an average of EUR 3,020 pr sq. m. Rental yields in the Baltics have also dropped to very low levels.

There are still some very inexpensive capitals in Europe. Berlin, in particular (EUR 3,167 per sq. m.), is now experiencing inflows of foreign money in response to its relatively low prices.

Even less expensive are Limassol at EUR 2.167 per sq.m or EUR 260.000 per 120 sq.m, Bratislava (EUR 1,292 per sq. m.), Warsaw (EUR 1,175 per sq. m.), Skopje (EUR 1,125 per sq. m.) and Moldova’s Chisinau (EUR 917 per sq. m.)

 

Rental returns cannot fall forever

As 2007 dawns, rental returns are lower in most locations than they have been for 20 or more years.

Nowhere in Europe are rents keeping pace with the continued strong rise in property prices. Residential real estate prices are at historical peaks in almost all countries in Europe, except Germany and Switzerland.

This is cause for concern. The Global Property Guide considers a danger signal to be rental returns of around 4% or below.

Several European capitals offer rental income yields around or below this 4% level. An example is Madrid, where rental returns are now at only 3.15%. Rental yields in Monaco are the lowest in Europe at around 2.43%.