Britain's investors look to broaden horizons

ARTICLES  Britain's investors look to broaden horizons Article by Kevin Brass, International Herald Tribune, * with excerpts, 7th October 2005

In the small ski resort town of Bansko - billed as "the best-kept secret in Bulgaria" - real estate experts are closely following coming changes in Britain's pension rules. Under the pending rules, British pensioners will, for the first time, be allowed to use money in a self-invested personal pension fund (SIPP) to buy residential property, including second homes and investment property in other countries. While there are many ramifications, the most striking feature of the changes is a tax break that could amount to 40 percent of the purchase price of a home, depending on the buyer's tax bracket. In effect, a buyer using money in a SIPP fund could buy a 200,000, or $145,000, property with only 120,000. Also, properties generating revenue will be exempt from most U.K. taxes.

By making the changes, the Treasury Department hoped to encourage pension investments and to bring SIPPs in line with other pension funds, which allow real estate investments, according to a Treasury spokesman. The new rules are set to go into effect April 6, commonly referred to as "A-day" in the pension industry. "As soon as people begin to realize, it will be like pouring fuel on a fire," said Jeremy Rollason, a director at Savills International, the U.K.-based real estate firm. "People will be rushing to purchase residential property through these schemes."

While popular markets like the Costa del Sol and Côte d'Azur are most likely to see an immediate impact, analysts believe the ripple effects will be felt in places like Cyprus and Dubai, where home sellers already are trying to attract more British buyers. "Potentially the impact could be quite large," said Ireland. Bulgaria has a favorable exchange rate, which already is helping to attract more British visitors. According to Bulgarian government statistics, the number of U.K. tourists jumped to 259,000 in 2004, a 63 percent increase over the previous year.

In Bansko, tucked in the mountains in southwest Bulgaria, a furnished, 107-square-meter, or 1,200-square-foot, three-bedroom apartment with a mountain view in a new development is sold for around 127,000; a small studio for as little as 46,000. Ninety-five percent of the English clients in Bulgaria are investors, enticed, in some cases, by guaranteed rental returns of 6.5 percent per year for three years. With the help of the new pension rules, a British buyer in Bansko could reap the U.K. tax benefits at the purchase and then sell the property without paying tax on the profit, thanks to Bulgaria's lenient tax laws.

The British continue to be voracious buyers of overseas real estate, encouraged in recent years by inexpensive air fares. More than 250,000 British citizens now own property overseas, up 50 percent in the last decade, according to the government's Office of National Statistics. While estimates vary wildly, analysts believe the changes in the SIPP rules will shift anywhere from £5 billion, or $9 billion, to £11 billion of pension funds into real estate in the next few years. And the number of SIPPs is expected to grow tenfold by the end of 2006. However, the restrictions placed on the new rules were designed purposely to prevent any mass rush to buy, the Treasury spokesman said.

The rules dictate that the SIPP will own the property and any rental income would go into the SIPP, so an investor could not expect a flow of ready cash from a property, he said. In some scenarios, an individual might even be forced to pay rent to the SIPP for the use of his or her own vacation home. In addition, there is a cap on the amount that can be invested in real estate, currently set at GBP 215,000. Many financial consultants in Britain are advising caution. "It presents tremendous opportunity, but there are potential downsides," said Allan Young, an independent financial adviser and partner in Tag Wealth Management, based in Sheffield, England. Many pensioners might focus their retirement accounts too heavily on real estate rather than a more diverse mix of investments, Young said. And they may find it difficult to liquidate their assets. "Ultimately the money in a pension fund has to be converted to income," Young said. "Real estate is notoriously more difficult to get rid of than, say, stocks or equities."

While SIPP purchases will be exempt from most U.K. taxes, overseas buyers will be subject to the tax laws of the local country, adding a level of complexity to any transaction. Spain, for example, does not recognize trusts. Around Europe, property agents are preparing for a potential wave of new buyers. "We've already had a tremendous amount of inquiries," said Tony Sparkes, managing director of AGS Properties, based in Alicante, Spain. "We're all trying to gear up and jockey for this enormous rush come April." The new SIPP rules are welcome news in Spain, where some analysts believe sales of vacation homes are starting to slow after a decade of almost annual double digit growth. Of the overseas homes owned by British citizens, 27 percent are in Spain, according to government figures, making it the largest market for British buyers. The market is expected to open up to smaller investors. Purchase a holiday home in Bansko New UK pension rules to boost visits to Bulgaria Article by Ivan Vatahov, The Sofia Echo, 17th October 2005 At the London exhibition, Bulgaria emerged as the only affordable option for retail investors in the market for mountain resort properties. The Bulgarian properties showcased at the exhibition had little or no competition price-wise with one-bedroom apartments and studio apartments in both seaside and mountain locations asking just 30 000 to 80 000 euro. The capability of the tourism sector to further support the interest towards investing in Bulgarian property will also be checked in the period of October 21 by October 23 when this autumns Real Estate Expo will be held in Sofia. More than 100 leading property developers and real-estate agents will take part in the largest trade show in this sector on the Balkans.