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With the UK housing market in a slump, British investors are looking further afield - jumping on planes to places they'd never heard of in search of higher capital growth and rental income. In the first of a series, Peter Conradi jets into Bratislava, the Slovakian capital, to dig for bargains
A little short of breath after climbing her way up three flights of stone stairs, Ingrid the estate agent throws open the doors to a palatial flat in the heart of Bratislava, the little-known capital of little-known Slovakia.
Spanning 1,615sq ft, it is about the size of a traditional British semi. No expense has been spared, from the high-tech wired-in sound system to the luxurious marble bathroom on which the owner has lavished more than £20,000.
The floors are paved with a mixture of parquet and exotic tiles, the ceilings have ornate mouldings, and the walls are covered in pink and green wallpapers. This exercise in Slavic kitsch can be yours for just £160,000 - not much by British standards, but a near fortune in a country where a cup of coffee costs 30p and two people can eat out well for £20.
"The owner wanted to finish it before moving, but he has decided to sell anyway," says Ingrid, an elegant thirtysomething blonde, who admits it isn't really her style either. Asked to reveal more of the owner, she says dismissively, "Oh, I think he's something in buying and selling."
There is no shortage of similar triumphs of money over taste in the Slovak capital. There are also a few rather scary unmodernised places - "in their natural state", as the locals euphemistically call them - with shabby communal parts and rooms covered in dark, heavy furniture that still reeks of the country's communist past. Finding the happy medium is considerably more difficult.
Not, of course, that I am contemplating actually living in the flat - or anywhere else in Bratislava. It may be a pleasant enough little place, on the banks of the Danube with its own 15th-century castle, a fine historic centre and some of the most beautiful women this side of Moscow. Slovakia's flat income tax of 19% is also a tantalising prospect for those of us who spend five out of every 12 months slaving for Gordon Brown.
No, Bratislava is interesting as a symbol of the latest big phenomenon to grip property-mad Britons: Fly-to-Let. With prices at home crumbling and one-time northern hot spots such as Leeds and Newcastle distinctly chilly, canny investors are looking further afield.
We are not talking holiday villas in the Dordogne or Tuscany, but rather properties - and they are mostly flats - that can be let around the year, offering a mix of healthy yields and potential capital gains you can only dream of in post-boom Britain. Familiar western capitals like Brussels or Amsterdam, "new European" cities like Tallinn, Sofia and Gdansk or more exotic locations such as Reykjavik, Dubai and even Shanghai are all being touted as the Next Big Thing.
Although definitive figures are hard to come by, a recent survey by Oceanico Developments, a developer active in Portugal, has estimated the British fly-to let market could be worth more than £58 billion.
For Charles Weston-Baker, director of Savills' international residential department, the explanation is simple. "Because things are so lacklustre in Britain, everybody's looking abroad," he says. "The whole expansion of the EU has given tremendous confidence to people who are looking further afield. Buyers are much more adventurous now."
Experts agree, however, that it pays to do your homework. Simon Conn, senior partner at brokers Conti Financial Services, is surprised at how many people fail to do basic checks before buying - a potentially lethal error in Croatia and several other eastern European countries where uncertainties about legal title mean you might not own something you think you have bought.
"I had someone who rang up the other day who said, 'I want to buy in Dubai, but where is it?'," says Conn. "You get people who have bought several buy-to-lets in Britain and because they have got experience here, they think they know what they're doing there. But if you don't do basic research it can blow up in your face."
Over the next few months, The Sunday Times will guide you through the new Fly-to-Let market. Each month we will feature a new city - from familiar places you may never have considered as an investment, to strange and exotic ones that will have you reaching for your atlas.
We will point to the properties on offer, assess the long-term prospects and highlight potential pitfalls.
So how does Bratislava shape up as as a first port of call for the budding fly-to-letter? The city has long been in the shadow of its larger and more glamorous neighbours, Prague and Budapest, where British - and even more Irish - investors have been buying for several years.
Prices have nevertheless been rising, especially in the run-up to last May, when Slovakia joined the European Union, and are now at double or triple the levels of five years ago. Things have calmed down in the past few months, and prices in some parts of Bratislava have even drifted down slightly as the anticipated wall of foreign money failed to materialise.
Ian Brodie, a British journalist turned property consultant who moved to Slovakia from Prague seven years ago, is convinced there is scope for Bratislava to play catch-up, not least because of the tax-cutting policies of the government, which have helped turn the Slovak economy - also one of Europe's biggest car producers - into one of the most vibrant in central Europe. "If you say Bratislava, most people don't know where it is," said Brodie, a man of many parts who also runs a local bed and breakfast. "But although Prague and Budapest have much better name recognition, Slovakia has better politics and economics and this is helping close the gap."
It is not just income tax that is a mere 19% - so is almost every other tax, which is attracting foreign companies to set up in Slovakia, bringing with them expatriate staff looking for flats to rent. The local equivalent of stamp duty, currently 3%, has just been phased out - which should help prices.
The real boost could come from the opening of a motorway to Vienna - which lies just 45 miles away. Once Slovakia joins the EU's Schengen agreement, which eliminates border controls, most likely in 2007, Bratislava could effectively become a suburb of the Austrian capital - where prices are three times higher. The best bet for those looking for a combination of decent gross yields of 8%-10% and the chance of long-term capital gain is probably the pedestrianised area of the Stare Mesto, the old town, which is filled with trendy bars and restaurants and designer emporiums.
Your tenants are almost certainly going to be expats rather than locals and this is the area where the young and unattached among them will want to live. Many of the buildings are stylish remnants of Slovakia's neoclassical Hapsburg past with high ceilings, even though the communal areas are often drab and tired.
The main attraction long-term, though, is that the supply is necessarily limited, which will probably tend to drive prices here up relative to other parts of Bratislava.
Things get cheaper as you move away from the pedestrianised area, but quality can vary enormously. Although more than 15 years have passed since the fall of communism, the property market is still in its infancy and asking prices often seem to bear little relation to the size or condition of the property.
One especially shabby flat I visited with Andrea Feckova, Ingrid's opposite number at Bratislava-based Space Reality, was £76,000 when I walked through its front door but had dropped to a far more realistic £63,000 by the time I finished looking around it 10 minutes later. And that was even before I had started haggling.
These properties, too, should be relatively easy to let, perhaps to affluent locals rather than foreigners, although a lift is always an advantage. Feckova assured me dark, shabby entrances are so prevalent that anybody who has lived in Bratislava for any time will not be put off. I am not so convinced. For a city bisected by the Danube, there is surprisingly little on offer with a river view.
That is expected to change, however, with the massive Eurovea complex being built by Ballymore, responsible for several developments in London's Docklands. Billed as "central Europe's most sophisticated mixed-use riverside development", it will boast apartments as well as offices, a hotel and casino spread over 2.16m sq ft.
Whatever property you go for, the good news is you will not have to put down too much of your own money. Large Slovak banks such as VUB and HVK are surprisingly keen to offer mortgages to foreign investors, with rates for loans either in euros or Slovak crowns from about 5.5%. Mortgage interest, together with other reasonable costs, can also be offset against rentaincome.
They are also happy to conduct business in English rather than the tricky local lingo. "Your interesting of invest in Slovakia in corporation with our bank is glad for us (sic)," wrote Andrej Slezko, of HVB Bank Slovakia, when I e-mailed him out of the blue to request a mortgage. I think we may be in business. Source: TimesOnline
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