British investors are starting to look at foreign property again, with some snapping up homes in American cities such as Detroit.
The recession hit demand for overseas property, with foreign currency brokers saying their business over the past two years has been dominated by expats selling their houses and returning funds to the UK.
However, brokers say the tide has started to turn, with FC Exchange reporting a surge in clients interested in using overseas property to boost income.
Nick Fullerton at FC Exchange said: “In the past six months or so, we have started to notice clients seeking to invest again in properties abroad. They have seen a notable drop in overseas property prices and are finding that the risks of owning houses abroad are acceptable compared with having money stagnating in a UK savings account.”
His firm has seen a 75% increase in inquiries from clients looking to buy in Europe, especially Spain, and America in the past six months. Property prices have dropped by 20% to 30% in Spain since 2007 and more than 30% in the US since the boom ended in 2006.
Fullerton said: “In particular, we have noted a number of clients expressing interest in US cities such as Detroit. The Michigan state authorities are working with estate agents to sell repossessed homes to investors, who will then let them to the growing rental market.”
Assetz USA, an estate agent, is seeking UK buyers for three-bedroom detached homes in Detroit, Michigan, priced between $45,000 (£27,700) and $55,000. They offer net rental yields of up to 15% backed by a state housing scheme. All were foreclosed, or repossessed, and the price includes taxes, fees and renovation costs.
The state scheme, called Section 8, provides accommodation for families with income of less than $71,000, many of whom have had their own homes repossessed.
Assetz USA said it had sold more than 100 homes through the scheme in the past 18 months, with all of them let within four months.
Unlike in Britain, where council tenants are allocated accommodation, Section 8 tenants are free to choose. Tony Halsall at Assetz USA said: “Their choice is limited only to those properties that have been passed as acceptable for the scheme by the state. Naturally, tenants will always choose nicely presented properties in good areas and this is the key to this proposition.
“The scheme is particularly attractive for long-distance landlords because the rent is secure and comes directly from the Section 8 programme. The tenants also tend to be stable working families who stay much longer than open-market rentals. The sheer number of bank foreclosures has left millions of former homeowners needing somewhere to live and the rental market is booming.”
Paul Dales at Capital Economics, the research consultancy, said: “The one big positive for Michigan is that prices have fallen so much — by almost 30% — that, relative to incomes, housing looks incredibly undervalued. Last year, housing in Michigan was more undervalued than in any other state apart from Nevada.
Kevin Gardiner at Barclays Wealth, the private bank, said: “Very few commentators seem willing to advance the possibility of a rebound in activity and prices any time soon, but compared to some of the booms seen in Europe, the surge in US house prices in the last cycle was relatively modest and has now been largely unwound. We would be less surprised than the market to see activity and prices pick up markedly in 2011.”
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