U.S. markets are heady and uncertain. The most important agenda for any U.S. investor as we head into 2014, therefore, is diversification, and real estate overseas is the best possible diversification strategy. Foreign property diversifies not only your portfolio and your assets, but also your life, your retirement, and your legacy.
Where, specifically, should the would-be global property investor target his attention? Here are the eight most interesting property
markets worldwide right now:
I’ve been touting the Panama real estate market for some time, including through the global real estate bubble burst of 2008/2009. Six years ago, when everyone else paying attention to Panama was insisting the market here would collapse, as markets elsewhere were collapsing, I disagreed. Indeed, property values in Panama never did collapse. The market in this country softened through 2012 then stabilized. Now we are at the start of another big run-up. Indeed, in the past six months, property values have appreciated in key areas, especially along waterfront districts including Balboa Avenue, Punta Pacifica, and Costa del Este. Strong demand from the United States, Canada, Venezuela, Colombia, and European countries including Spain and the UK and a decreased supply of new apartments for sale have driven up prices by as much as 10% since second quarter 2013.
That said, right now, even on trendy Balboa Avenue, good deals can still be found. 2014 will be a game-changing year in this country, especially in Panama City, as significant infrastructure projects come to completion, including the capital city Metro and Phase 3 of the Cinta Costera, and just around the corner is the expected completion of the Panama Canal Expansion. New apartment inventory is low and immigration remains high as banks, international corporations, and retirees continue to expand into this market.
Paris is one of the world’s most proven rental markets and stores of long-term value. The French property market took a hit in 2008 and 2009, but not nearly as big a hit as other property markets in Europe and nothing like in Spain or Ireland. The Paris
market, in particular, recovered relatively quickly. Rural France has remained flat since the downturn, but values in Paris saw reasonable growth in 2011 and 2012.
Now, this year, we have another softening, and right now is a good time to be a buyer in Paris. Particularly of interest right now is Montmartre, in the 18th arrondissement. This is one of the most active rental markets in the city and a neighborhood that is attracting increasing investor attention. The city recently invested 25 million euro in the renovation of Montmartre’s art-décor Luxor theater, for example, which, now reopened, is serving as a base for a localized transformation that is gaining momentum.
Pundits are speaking about the new asset class, farmland. Farmland isn’t a new asset class; it’s the world’s oldest. However, it has
become very attractive in the past several years and is going to become more attractive over the coming decade as the world’s population continues to expand. We’re looking at a total world population of more than 9 billion people by the
middle of this century. This is translating to a global race for farmland, with some countries (such as Brazil) imposing restrictions on foreign ownership of productive land.
In this context, Uruguay stands out; about 95% of the land in this country is farmable. Foreign and local investors are treated the same in Uruguay; there are no restrictions on foreign ownership or use of land. No exchange controls or currency restrictions either. Uruguay is a foreigner-friendly, investor-friendly place and, as a result, has enjoyed the highest rate of foreign direct investment per capita of all Latin America for the past three years.
Uruguay’s farmland market is transparent. The entire country has been surveyed for productivity levels. Each land parcel has
an ID number. You can plug this number into a map (available online: www.prenader.gub.uy/coneat) to see the productivity rating for whatever piece of land interests you. The system amounts to an MLS for farmland quality, making it uncommonly easy to compare all your options at once.
What could you produce? Almost anything you could imagine, from agricultural crops (soybeans, wheat, rice, etc.) to cattle or sheep for dairy, forestry (eucalyptus, pine), vineyards, olives, blueberries… None of these is a new crop to Uruguay—5% of the world’s meat exports come from Uruguay; the country has the two biggest paper mills in the world; and Uruguay is the world’s
sixth-largest exporter of soybeans and fourth-largest exporter of rice. If you’re buying for investment, plant soybeans (to sell to China). If you’re buying for investment and for fun, try a hobby crop, like blueberries or grapes.
Why did the global crisis of 2008 hit Spain so fast and so hard? Overbuilding on a massive scale. Developers believed the planeloads of eager buyers were endless, and they were building to supply that perceived potential. In 2006 alone, 800,000 homes were built in Spain, more than in France, Germany, and Italy combined. A large percentage of property owners who bought during the boom years were second-home or buy-to-let investors; they didn’t have the stomach to hold on to their properties when they
saw prices falling. Many were British owners who had remortgaged a UK property to pay for a Spanish one. With rising interest rates in the UK, it became impossible for these British owners to hold on to their homes on the costas. Some sold, some lost their homes, and the situation certainly deterred new Brits from shopping.
The scene on the ground along the coast of Spain today is near-desolation and near-desperation. Massive numbers of properties are
available at hugely discounted prices. The average price of real estate in this country has fallen by well more than 50% since 2006. It’s a classic crisis market, meaning a market of opportunity.
Two areas to target in particular:
Parks plans to develop their next big resort northwest of Cartagena. Estimates are that it will attract 3 million visitors per year, and local press is likening the park to Disney in Orlando. There are currently hundreds and maybe thousands of properties on the market in the region. Look specifically at property on the coast, for example on the Mar Menor at Los Alcazares.
The center of this city is divided into l’Eixample, El Raval, La Rivera (El Born), Barrio Gotico, and La Barceloneta. El Raval used to be the rough part of town and there remain streets to avoid. However, the government has created a new ramblas here (La Rambla El Raval) and has given permission for a new luxury hotel. El Raval is expected to develop as the next La Rivera—chic, creative, and eventually expensive, but right now it’s not.
The Philippines is a growing tourist market for the region, an increasingly appealing destination (thanks to its low costs) among
Asia’s growing middle class, as well as a growing retirement destination among Westerners. The expanding influx of foreigners of both those descriptions will have a positive impact on real estate prices long term.
Note that this country restricts foreigner property ownership to condos. This is ok, though, as I see condo rentals, especially condo-hotel units, here as good buys.
One particularly interesting market is Makati, an upscale district of Manila and a good place to target for a rental investment.
For decades, Medellin served as the capital for the world’s most notorious drug cartel, but that’s all history. As the stigma of the drug wars diminishes and more people visit Medellin to see the city for themselves, as more international businesses relocate to Medellin, and as retirees discover all this city has to offer, real estate prices will pop, making this one of a very few markets worldwide where I believe capital appreciation is a reasonable short-term expectation. Values are up 15%, on average, in the past two years and should continue steadily up at this rate.
Important forces at work in this market are the foreign mining and oil industries, which have helped Colombia’s economy to continue to expand even while much of the world struggles through recession and worse. Executives working for these foreign outfits operating in Colombia need furnished rentals for anywhere from a month to a year. They want high-quality properties in
convenient, central locations, and they are on expense accounts, meaning they can afford to pay for what they want, meaning net rental returns can reach 10% per year and more.
Historically, timber has enjoyed the best risk/reward ratio of any investment sector. Depending on whose chart of historical returns you consult, timber as an asset category has produced an annualized ROI in the range of 12% to 15% per year every year since
they started keeping records of investment risk versus return. It’s a low-volatility hedge against inflation and an asset class that operates independent of the stock market.
On top of this, timber is a commodity that will always have a market and that doesn’t have to be harvested at a particular time. That means that, if prices for your wood are less than you want or expected them to be, you can leave your trees in the ground so they can continue to grow until prices reach a level you like better.
For my money, teak is the surest timber investment you can make. Today, teak plantations can be found in a band around the earth between 20 degrees north and 20 degrees south of the Equator. This includes Southeast Asia, India, Central America, Brazil, and parts of Africa. Taking a look at a world map and all things considered (the ideal growing requirements, the ease of investment, the
cost of investment, the opportunities for investment, and the tax implications), Panama jumps out as a top choice for investing in teak. This country is one of a handful of places in the world where you can grow premium teak trees. In addition, Panama is very pro-investor, home to a number of managed plantations, and, because it is interested in promoting forestry, makes the proceeds from related investments tax-free.
A foreigner can own property outright in Malaysia. This simple but critical fact sets this country apart in this region. Malaysia is also a regional and a global hub, for trade and for business. The country is an expat melting pot for the region, with big numbers of expats both from all over Asia and, to a lesser extent, the West. Because it is a former British colony, English is widely spoken, so you don’t have to worry about trying to learn to speak Malay.
Target the Johor Bahru area, bordering Singapore. Singapore has limited space to expand so more and more people are living in Johor Bahru and commuting across the border. As a result, real estate values on the Malaysia side are appreciating quickly.
Lief Simon has lived and worked on five continents and traveled to more than 40 countries. An international
investor, he has personally bought and sold property in 16 countries. In 2008 he launched www.liveandinvestoverseas.com with his wife, Kathleen Peddicord.