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During my career as an Independant Financial
Advisor (IFA), I have lived and worked in the UK, Italy
and Hong Kong. I have owned property in many different countries and
worked with many clients who have brought and sold property in just
about every developed (and some lesser developed) country you can think of. There is no magic formula for success,
however I consider the following as my top criteria when considering where
to and
what to buy.
Where to buy?
Stability is key
Property is no different to any other ‘real asset’ class; there are
low and also high opportunities. We all have different risk profiles and sometimes
we consider investing
in higher risk opportunities to try and achieve higher gains. Think about the risks and
judge the level of your investment in line with your tolerance for downside
risk and potential cash losses.
Factors I consider:
- Political stability
- Legal system, is it transparent tried and
tested?
- Land ownership; can foreigners own land
and if
not what alternative structures are used and what are the risks?
- Safety, what is the level of crime rate?
- Currency stability; has the currrnecy been
and is it forcast to remain stable against your‘base currency’ or to other major
currencies.
Future prospects
The economy: What is the economic outlook for the country. Does it
have growth potential for business development or tourism, i.e. Shanghai
or Croatia What do the demographics of the country look like,
population growth, GDP growth, average wage ?
Step Changes: Are there any structural changes expected, such as entry
into the EU? Or countries developing from different political regimes
e.g. the eastern European countries.
Also use common sense, what does the country offer: a great climate,
fabulous beaches, low tax environment to support business development?
Timing - relative value of the property
market.
Getting the timing right on entry is key to achieving short term
gains. My advice is to look at relative value of the property
market. How do prices cmpare with neighbouring countries and what
are the reasons for these differences. Take a look at
current rental yields in different countries this also gives a clue as
to future prospects i.e. high yields can indicate that property values
may increase.
- Rental yields
- Price levels compared to neighboring
countries.
- Is the property market in an up or down
cycle?
- What is the current currency level compared to
your base currency.
Infrastructure Support
Accessability: What level of infrastructure
investment is planned within the country?. How is the country served for access by air ( access for
budget airlines), and road? What is the proximity of the country to
other countries with higher levels of income ?
Financing: Mortgage availability supports property markets. However,
buyers can leverage other
assets to buy property. If a mortgage market is yet to develop this may
offer short term opportunities, i.e. Montenegro / Croatia. Once
mortgages are in place property values normally increase as the extra
liquidity and affordability drives demand.
Property management: In order to protect your property and to derive
an income from rental you will need it to be properly maintained and
managed in your abscence. In some emerging markets, particulaly
low priced markets, there isn't a reliable managing agent or leting
agent looking after the property. You can then run into issues
ofpotential crime, on-going maintenance, letting voids etc.
Land availability and
Planning rules
How is the country being developed? What is the level of land supply
what are the planning rules within that country. What type of business
or type of tourist are they trying to attract. There are no right and
wrong answers to these questions the responses indicate the approach to
future development and hence give clues to the best type of purchase:
- With a high supply of land, you would expect
to be able to get land or houses at relatively low prices.
- A focus on mass tourism: look for low cost
holiday accommodation.
- With careful land management and strict planning rules
then expect to pay more for land but rental yields should support the
values. Think more luxury property.
What to Buy !
Location, location, location - you can't
beat it!!
Whatever type of investment you choose make
sure that you get a location that is attractive and differentiated.
For example buying prime in established locations will protect you
in a downturn on property values and make it a rental asset with less
void periods. However, for greater capital gain potential there may be
more upside in secondary areas. For example, there are areas outside of
major emergent European cities that are booming due to industrial type
development. Let your
common sense have the final say:
- City Center: go for the prime areas, walk
around and see where the best shops and businesses are.
- Holiday lets: beachfront in established
locations or country villas with unobstructed sea or mountain/hilltown
views and facilities!.
- Commercial areas; look at the demand for and
supply of land or other properties.
What type of property
Be clear in your aims. Is this purely an investment that you will
never use yourself? Do you want a fairly liquid asset. Do you want a
holiday home to use and to rent out? How important is rental yield
versus capital appreciation? Broadly I would say that the following
statements hold true:
- City Centre: 1 and 2 bed flats usually offer
the best yield and liquidity due to demand and affordability.
- Holiday Apartments: for small units, think
beach front in the heart of the action. These will give you a good
yield and higher occupancy.
- Holiday Houses: get a great location, ideally
with a pool. Here you are attracting families.
Capital Appreciation
Look at the demand and supply of different housing types. Try to
get a feel for the relative interest in old and new property. Is there a second
hand market? Capital appreciation is all about demand and supply.
Too much hassle?
Getting the information to make these judgments all sounds like a lot
of work but really isn't. The internet has great reports and lets you
walk around estate agents "virtually". Any developer worth talking to
will give you this type of information and show you where to look at
different reports. Have a look at our site at
www.vestaland.com to get an idea.
Trawl through some property sites, send a few emails and you can soon
get a feel for the where and what to invest that may suit your profile
as an investor.
Good investing!
Copyright 2005©Dave Wiltshire. All rights reserved.
David Wiltshire has been an Independent Financial Adviser (IFA) for
over 20 years, running successful practices in both Europe and Hong
Kong. He has worked on property financing and purchasing. He is a
Director of VestaLand,
www.vestaland.com, a boutique property developer currently focussing on emerging
European markets.
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