This year has seen the first signs of the property market slowing in the traditionally popular holiday home markets of Spain and Portugal, and with owners expected to drop asking prices in order to secure a sale, Tribune Properties believes buyers will be in their strongest negotiating position since the mid 1980s when property prices on the Spanish Costas dropped by almost one third.

Moreover, the worst drought in living memory in the region has put off many prospective buyers and cast uncertainty over the viability of the rental market.

"Some buyers rely on renting their holiday home out as they take out a mortgage to buy," noted Roger Munns, Managing Directir of Tribune Properties, "and if they can’t rely on this it creates doubt as to whether to buy or not. Some buyers were taking the view that they should wait to see what happens."

"Second home buyers are seeing properties offered in Bulgaria at less than half the price they thought they would need to own a home overseas, and the traditional markets of Spain and Portugal are losing out," observed Mr Munns.

However, the two countries they see in Europe with growth potential for 2006 are Andorra and Monaco. Andorra has seen double digit property price inflation for the last two years, with the 2005 figures likely to match. Meanwhile, after a slow start to the year, Monaco has seen strong buying in the last quarter.

The fact that these small countries have very little room for new developments is likely to ensure that demand for property will remain well ahead of supply. Furthermore, both Andorra and Monaco offer zero rates of income tax for residents, a factor which Mr Munn believes will attract many new buyers from Germany, where the top rate of income tax is being increased.

"Despite the German economy being slow for the last few years it remains a very important market. The raising of the top level of tax will mean more Germans seeking residency in a country with low tax levels. Andorra and Monaco are the two most likely candidates for them to buy in and take residency," Mr Munn observed.

Tribune offered the following advice to potential overseas property buyers:

• Find out how long a property has been on the market for;
• Make provisional offers of between 5% and 10% off of the asking price on a shortlist of three or four properties as one owner is likely to accept; and
• Always employ an independent lawyer to handle any sale and deposits.