You could be forgiven for thinking that the Irish overseas property market had suddenly disappeared down a black hole. The good news is that it hasn’t – but those who would have been investing in overseas property have become far more circumspect about their options and are a lot harder to separate from their cash than was previously the case. This in itself probably isn’t any harm, as we are unlikely to see a lot of the poor decisions made during the boom times. It is, however, causing a lot of pain for agents and developers. Those in the true ‘investment’ side of the industry have noticed a significant slowdown, and claim that they have to explain their products in far more detail to prospective clients, but they are still doing business. Those who can’t make an investment case for their products are really struggling.
Investment and property – the two words are almost constantly inter-twined, but one would really have to question should they be as synonymous as they are often made out to be? In short – not always. This seems like a strange statement from someone in the industry, but there is a good reason for it. In my experience, there are at least as many people who have made disastrous ‘investments’ in the overseas property arena, as there are those who have successfully invested abroad.
It is easy to lay the blame for such investments at the feet of unscrupulous agents, hungry for commission, and pushing product with limited or no investment upside. The truth is, though, that unless there is a very willing and gullible audience that refuses to do in depth research of its own before investing in such products, they can’t be sold. Therefore the culpability cannot always be laid exclusively at the feet of salespeople.
There is no doubt that investment potential of resort property has been oversold on the Irish market for years simply because it has been recognised that the vast bulk of the Irish buying public is looking to justify its purchases by finding an ‘investment angle’.
In this piece we will seek to differentiate between some of the different types of overseas property, or means of investing in property, presented to the Irish market and seek, to some degree, to investigate their investment potential.
This is the most contentious means of investing in property so we’ll deal with it first. Flipping is, essentially, the process of putting a down-payment on a property off-plan and then selling it before taking ownership. It is often also used to refer to selling a property on shortly after taking possession but, in this case, the investor gets caught for full capital gains tax which a proper ‘property flipper’ would seek to avoid. Avoiding the capital gains tax is, incidentally, illegal in most countries, Ireland included, but it was still a very common form of investment until the beginning of the current economic crisis.
Flipping is the single most dangerous means of investing in property. Firstly you are working on the presumption that the value of the property will go up, rather than down, from the time you purchase it until you sell it. As we can see in today’s market, this isn’t a given. Even in a strong market with good capital growth the actual ability to ‘flip’ a property is strongly suspect. How do you make a profit when you are competing against all the new off-plan property currently on the market?
In reality, flipping is not property investment, it is gambling. It may well suit those who are into high risk investments, but even at that you’ll often do far better taking your chances at an online casino.