Inside Track warns against investing in eastern Europe

While three in 10 Britons now see eastern Europe as the market that will deliver the best capital returns for property investment over the next 10 years, Inside Track warns this optimism may be misplaced.

The company has compiled research in the region, particularly in Croatia and Bulgaria and chief operating officer Anthony McKay believes buyers are rushing into these markets not fully appreciative of the risks involved.

McKay says: Thousands of units are being built in both Croatia and Bulgaria and many people see this area as the next big thing.

But, all there needs to be is a downturn in the market, or for political unrest to flare up, and many people are left thinking: How on earth am I going to sell?.

Its a good idea for buyers to consider higher risk, high return properties to go alongside low risk investments that make up the bulk of a successful housing portfolio.

In Croatia and Bulgaria, though, inexperienced investors are putting their life savings on the line in the hope that they can make a fortune.

I fear many people may end up bitterly disappointed because they are not aware of the complications within this market.

Inside Track highlights several features of the Eastern European purchase system that could be problematic.

It says there is no legal organisation that regulates home ownership in Croatia, leading to a lot of confusion the countrys land registry system can allow the person selling a property not to be the owner.

Some properties in Croatia have been built without appropriate permission.

In Bulgaria, investors must establish a limited company before they can purchase land and tax regulations in can be extremely confusing .

The average wage in both Croatia and Bulgaria is low, meaning most locals cannot afford to rent new build properties, and investors are limited to foreign tenants only.

McKay says: For the Croatian and Bulgarian markets, the answer is likely to be no for at least one of these questions.

Before recommending any country to property investors, we always perform what we call due diligence: an analysis of the political stability of a country, its legal system and also the transport and banking infrastructures.

I would advise anyone thinking about investing in Croatia or Bulgaria to perform some due diligence or their own and consider the option carefully.