It is the golden rule of investment – as one opportunity wanes, another rises to replace it. The key to success is knowing where to turn, and what to expect when you get there. Nowhere is this adage more appropriate than in the world of property investment. As returns in the more established countries begin to show signs of stabilising, investors are turning to new, developing regions in order to chase above- average returns. As in so many other areas of commercial activity, it is the regions of Eastern Europe on which the property spotlight has begun to shine most brightly. Developing sectors such as Bulgaria, the Czech Republic and even Turkey (maybe not quite a member of Europe just yet, perhaps, but still attracting keen interest from speculators) are seen as the rising stars of property investment, where returns can be optimised for both developers and property investors alike. But just how much risk is involved and how do you ensure you protect yourself from an unexpected disaster? Most investors understand the risks to their investments from a major fire, or other catastrophic peril. In the UK, the usual answer is to turn to insurance and risk management to protect your investment. Products exist which are specially tailored to the needs of the property investor, protecting rental values as well as physical assets as well as to those of the commercial developer, extending that same peace of mind to construction and refurbishment projects alike. But how do such arrangements respond to overseas projects? The fact is that, in many cases, they don’t. It is easy to assume that the insurance regulatory environment in a country like, for example, Turkey, is similar to that here in the UK, but that would be a grave mistake. Only Turkish-based insurers are permitted to write most non-life insurances – simply asking your UK provider to extend cover will not work. Not only that, but, having found a Turkish insurer to underwrite your risk, you will then find that, in many cases, the cover provided is nowhere near as broad or comprehensive as you need. Similar issues arise elsewhere in Europe. In Bulgaria, for example, there are strict rules relating to construction projects which require collective professional indemnity insurance to be effected by every participant to a project – not just the contractors and architect, but investors too. Even those countries in Europe which are generally regarded as more developed present similar considerations. In pure financial terms for instance, the insurance premium tax levied by the German Government on property cover stands at an eye-watering 17.5%, some way above the rate of just 5% charged here in the UK. The good news is that there is a fairly painless way for property investors and developers to protect their assets and control their costs when considering investment overseas. In many cases, insurance and risk programmes can be established here in the UK market which can accommodate the vagaries and peculiarities of most European regions. Better still, they will usually be cheaper to operate and offer wider, more comprehensive cover – provided, of course, that they are set up properly and reflect the specific and peculiar requirements of each local territory in which cover is required. In many instances, establishing a pan-European insurance programme will be the most effective option but this will largely depend on the distribution and location of assets to be protected. Alternatively, it may be possible to establish what is commonly referred to as an umbrella facility. Under such an arrangement, investors or developers buy insurance cover in the countries concerned, under local rules and restrictions, but then “top-up” the cover by purchasing an additional policy in the UK market, designed to provide wider protection than can be achieved locally. Either way, it is important that anyone considering overseas property development takes professional advice from advisers such as ProtectaGroup who have experience and expertise in the field. Whatever the eventual solution, the crucial point is that care should always be taken when considering investment in Europe. Otherwise that overseas adventure might just turn out to be a road to disaster.
Source: Western Mail
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