European Investments

Europe covers about 10,180,000 square kilometres (3,930,000 sq mi), or 2% of the Earth’s surface (6.8% of land area). Politically, Europe is divided into about fifty sovereign states. Europe had a total population of about 740 million (about 11% of world population) as of 2015.

Europe is bordered by the Arctic Ocean to the north, the Atlantic Ocean to the west, and the Mediterranean Sea to the south. The eastern boundary with Asia is a historical and cultural construct, as there is no clear physical and geographical separation between them.

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Economic growth in Europe

Like other continents, the wealth of Europe’s states varies, although the poorest are well above the poorest states of other continents in terms of GDP and living standards. Whilst most European states have GDP per capita higher than the world’s average and are very highly developed, some European economies, despite their position over the world’s average in the Human Development Index are still catching up with European leading countries.

GDP ranking

In 2010 Europe had a nominal GDP of £15.98 trillion (30.2% of the world). Germany has Europe’s largest national economy (4th in World rankings). The UK is 5th, France 6th, Italy 7th, Russia 10th and Spain 13th. These 6 countries all rank in the world’s top 15, meaning European economies account for half of the World’s 10 wealthiest ones.

The end of World War II brought European countries closer together, culminating in the formation of the European Union (EU) and in 1999, the introduction of a unified currency – the euro. The EU as a whole is the wealthiest and largest economy in the world, topping the US by more than 2,000 billion at a time of great economic slowdown. In 2009 Europe remained the world’s wealthiest region

Effect of the World Wars

Before WWII, the UK, France and Germany were Europe’s major financial states, with much of the continent at a high level of industry following the Industrial Revolution. Whilst European states recovered well from WW1, the 2nd World War destroyed most of Europe’s industrial centres and infrastructures.

Formation of the European Union

After the devastation of WWII a number of European nations banded together to rebuild their economies. The European Union sought to set out trade deals between neighbouring countries and is now a huge economic and political organisation. The Union currently stands at 28 full member states with membership seen by many as something to aspire to.

Europe’s economy is dominated by the EU. Its global economic force makes the EU the Worlds largest single economy.

Born out of EU memebership is the Eurozone, a single currency (the Euro) launched in 1999, shared by the majority of member states. Three states chose to remain outside the Eurozone and continue with their own currencies; Denmark, Sweden and the UK.

Most European economies are currently in very good shape, and the continental economy reflects this. The bulk of the population in Western Europe still enjoys the highest living standards in the world, and in the world’s history.

Brexit

In June 2016 the UK opted to leave the EU via a public referendum vote. The UK Government is set to trigger Article 50, the formal process of leaving the Union, by the end of March 2017. Whilst it’s predicted the process may spell economic uncertainty and insecurity in the UK, the European economy as a whole is expected to be relatively unaffected. This is new ground however – a member state has never left the Union before. It is therefore uncharted waters and it remains to be seen what effect Brexit will have on the UK, European and global economies.

Europe’s housing market

In terms of rental yield, the best places to invest in Europe are;

  • Chisinau, Moldova – high yields, pro-landlord rental market, low transaction costs, moderate income taxes
  • Berlin, Germany – low to moderate transaction costs, largest economy in Europe, high yields
  • Skopje, Macedonia – high yields, pro-landlord rental market

Whilst on the surface these look like the places to invest, serious ownership restrictions apply, as well as political and security concerns exist in Macedonia. Moldova experiences secessionist problems and high tax rates. Purchases here must be in cash and it has one of poorest economies in Europe.

Safer, but perhaps less lucrative, European property markets are;

  • Talinn, Estonia – very low transaction costs, moderate yields, strong economic growth
  • Amsterdam, The Netherlands – moderate yields, strong economy, moderate transaction costs, moderate rental income taxes
  • Budapest, Hungary – good yields, low to moderate transaction costs, pro-landlord law
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Moderate yields can be expected in these areas, whilst also offering the security of political and economic stability and pro-landlord systems, low transaction costs and rental income taxes and rental markets.

Why invest in property in Europe?

Economy

Currency: Euro (EUR): 1 GBP = 1.1512 EUR

Population: 80.62 million (2013)

Gross Domestic Product (GDP) of Germany: £3.02 trillion as of 2013

GDP rank: 4th (nominal) / 5th (PPP)

GDP per capita: £33965.40 (2016, nominal), £38,817.60 (2016, PPP)

GDP growth rate: 1.9% annual change (2016)

GDP by sector: agriculture: 0.7%, industry: 30.2%, services: 69.1% (2015 est.)

Inflation: 0.5% (2016)

Employment

Unemployment rate: 3.9% (2016)

Labour force: 43.5 million (2016)

Labour force by occupation: agriculture (1.6%), industry (24.6%), services (73.8%) (2011)

Main industries: iron and steel, coal, cement, mineral fuels, chemicals, plastics, production machinery, vehicles, trains, shipbuilding, space and aircraft, machine tools, electronics, information technology, optical and medical apparatus, pharmaceuticals, food and beverages, textiles.

Trade

Exports: £1.21 trillion (2014 est.)

Export goods: motor vehicles, machinery, chemicals, computer and electronic products, electrical equipment, pharmaceuticals, metals, transport equipment, foodstuffs, textiles, rubber and plastic products.

Main export partners (2015): United States 9.6%, France 8.6%, United Kingdom 7.5%, The Netherlands 6.6%, China 6%, Italy 4.9%, Austria 4.8%, Poland 4.4%, Switzerland 4.2%

Imports: £1.05 trillion (2014 est.)

Import goods: machinery, data processing equipment, vehicles, chemicals, oil and gas, metals, electric equipment, pharmaceuticals, foodstuffs, agricultural products.

Main import partners (2015): The Netherlands 13.7%, France 7.6%, China 7.3%, Belgium 6%, Italy 5.2%, Poland 5%, United States 4.7%, Czech Republic 4.5%, United Kingdom 4.2%, Austria 4.3%, Switzerland 4.2%

Economy

Currency: Euro (EUR): 1 GBP = 1.1512 EUR

Population: 16.8 million (2013)

Gross Domestic Product (GDP) of The Netherlands: £690.53 bn (2013)

GDP rank: 17th (nominal) / 25th (PPP)

GDP per capita: £39530.74 (nominal, 2015 est), £40726.54 (PPP, 2015 est)

GDP growth rate: 2.1% (2016 est.)

GDP by sector: agriculture: 1.6%; industry: 18.8%; services: 79.6% (2015 est.)

Inflation: 0.2% (2016 est.)

Employment

Unemployment rate: 5.3% (January 2017)

Labour force: 8.4 million (2016 est.)

Labour force by occupation: agriculture: 2%; industry: 18%; services: 80% (2005 est.)

Main industries: agriculture-related industries, oil and natural gas, metal and engineering products, electronic machinery and equipment, chemicals, petroleum, construction, microelectronics, fishing.

Trade

Exports: £395.06 billion (2015 est.)

Export goods: natural gas, machinery and equipment, chemicals, fuels, foodstuffs

Main export partners (2015 est.): Germany 24.5%, Belgium 11.1%, France 8.4%, United Kingdom 9.3%, Italy 4.2%

Imports: £327.35 billion (2015 est.)

Import goods: machinery and transport equipment, chemicals, fuels, foodstuffs, clothing

Main import partners (2015 est.): Germany 14.7%, China 14.5%, Belgium 8.2%, United Kingdom 5.1%, Russia 5.7%, Norway 4.1% (2015 est.)

Economy

Currency: Euro (EUR): 1 GBP = 1.1512 EUR

Population: 9.897m (2013)

Gross Domestic Product (GDP) of Hungary: £107.93bn (2013)

GDP rank: 58th (nominal) / 58th (PPP)

GDP per capita: £21,796.93 (PPP, 2016)

GDP growth rate: 2.9% annual change (2015)

GDP by sector (2014): agriculture: 3.4%, industry: 31.1%, services: 65.5%

Inflation: 0.07% (August 2015)

Employment

Unemployment rate: 4.3% (January 2017)

Labour force: 4.688m (January 2017)

Labour force by occupation: agriculture: 7.1%, industry: 29.7%, services: 63.2% (2011 est.)

Main industries: mining, metallurgy, construction materials, food processing, electronics, textiles, chemicals, pharmaceuticals, motor vehicles, information technology.

Trade

Exports: £80.53bn (2014)

Export goods (2012): machinery and equipment 53.5%, other manufactures 31.2%, food products 8.7%, fuels and electricity 3.9%, raw materials 3.4%

Main export partners (2015): Germany 28%, Romania 5.4%, Slovakia 5.1%, Austria 5%, Italy 4.8%, France 4.7%, United Kingdom 4%, Czech Republic 4%

Imports: £78.34 billion (2014)

Import goods (2012): machinery and equipment 45.4%, other manufactures 34.3%, fuels and electricity 12.6%, food products 5.3%, raw materials 2.5%

Main import partners (2015): Germany 25.8%, China 6.7%, Austria 6.6%, Poland 5.5%, Slovakia 5.3%, France 5%, Czech Republic 4.8%, Netherlands 4.6%, Italy 4.5%

Opportunity

Istanbul (Turkey) and Riga (Latvia) are the markets to watch…

Istanbul is rated as number 4 in The Telegraph’s top places in Europe to invest. Riga is rated number 9.

In recent years Turkey has experienced rapid economic growth and Latvia high GDP growth. Both offer low (Riga) to moderate (Istanbul) transaction costs. Turkey’s capital is also recognised as having moderate costs and moderate to high rental yields, despite a pro-tenant rental market and moderate to high income taxes. Riga on the other hand has a pro-landlord rental market, low effective rental income tax rates and the recent correction in the housing market in Latvia has restored property value. Downsides in the area are low to moderate yields and minor restrictions on land ownership.

Mistoria’s European property team are knowledgeable on ownership restrictions across the continent and can advise on and find appropriate solutions that work within the laws of each country, when sourcing investment opportunities.

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