By Liam Reed…..(& with thanks to AC for passing it on!)
It’s been a funny old year 2011, with the funniest unfunny thing that happened being the epicentre of the international financial crisis shifting from the United States to the United Europe, sorry the European Union, no, sorry, the Eurozone, which is the countries within the European Union that adopted the Euro.
European Union isn’t really the European Union anymore anyway. After several member nations, including the UK rejected a new treaty giving the ECB tighter controls over taxation and fiscal policy, it was decided that those in favour would come ratify the new treaty anyway. This effectively split the EU into two groups. Sarkozy went on to call those that adopted the new treaty the “super Euro”, which is strange considering it was set up to strengthen a very weak Euro, and plays host to all those countries that were responsible for making it weak.
Anyhow, whether for positive or negative reasons, the decision to use the UK’s veto on the treaty will no doubt be a major part of what history writes about David Cameron’s first term as PM.
Meanwhile the UK property market has continued — as predicted by Halifax — to “bobble around the bottom” for nearly 2 years now. Oh, except in London’s top areas where prices continue to grow in double digits, (Land Registry data shows 4% growth in UK house prices in 2010, 14% growth in Chelsea and Knightsbridge). And, except in the rental market, which is experiencing a major boom fuelled by first time buyers inability to buy in their chosen area, either because they are priced out of the market, or they can’t get a mortgage — either because they can’t afford the deposit or don’t have a good enough credit rating.
Of course, London isn’t the only city to have outperformed its host country; similar pictures have emerged in many established markets, with prime properties in prime cities doing much better than the rest of the markets in which they sit. Nor is the UK the only place where a constrained mortgage market and beffudled house purchase market is fuelling a rental boom; a similar picture is emerging in the US, and according to the latest survey by RICS in Portugal as well.
But, apart from that it’s been all candy canes and sugar lumps all round. I’m joking of course, but investors have found opportunities this year, as always and as they will continue to do next year as well. Here’s a few of the places they may be looking.
1 of 5/ Romania
The Romanian housing market has been in freefall for over 2 years, and prices are down by between 20% and 50% depending on what report you read, who you listen to or what area you look at. However, the economy is recovering strongly from the downturn. According to Eurostat data the Romanian economy grew 1.3% year on year in Q1, 1.9% year on year in Q2, and 4.4% year on year in Q3. Romania also has the advantage of not being in the Euro.
This is all very reminiscent of neighbouring Latvia, which also still uses its own currency. In 2009 and 2010 Latvia dominated the wrong end of the Global Property Guide index, joining Dubai in 50% plus price drops. But its economy also recovered well from the crisis. According to the same data Latvian GDP grew 3% year on year in Q1, 5.1% year on year in Q2 and 5.3% year on year in Q3. In the latest Global Property Guide index Latvia is the third best performing market, with prices up 13.3% in the year ending Q3. Investors have missed the bottom in Latvia, but have the chance to get in early in Romania.
2 of 5/ Turkey
Turkey is likely to continue in 2012 as it has in 2011. Right now Turkey is the fastest growing economy in the world. Although rising inflation is on the problem horizon, the government has earned a reputation for excellent fiscal management, so there is little doubt that it can soften the lines of inflation, especially with interest rates still so low. The budget deficit is a surplus, public debt is low and falling and record export growth is slowly but surely closing the trade and current account deficits.
Turkey attracts foreign investors investing in holiday homes, and those investing in residential buy to let properties, both are set to see a strong 2012.
Residential property investors, aka buy to let investors are looking for locations where demand for property is outstripping supply, and also for an exit strategy.
When people make buy to let investments in foreign countries, they tend to focus on cities, where there is an emerging demand for housing. In Turkey the three largest cities are Istanbul, Izmir and Antalya. In all three the populations are growing rapidly in numbers and in affluence. Employment is growing and there is increasing migration to these cities from rural areas and surrounding countries. On top of that, access to credit, which is currently very loose is slowly being tightened. In any case, as we know, not everyone who needs a house can afford to buy.
Hard data shows that in Istanbul, where the population is growing fastest, developers simply cannot build fast enough to meet demand, and reports indicate that supply is at capacity in Izmir and Antalya as well. Thus, we can expect growing residential property investment in Turkey in 2012.
Holiday Home Investment
The biggest attraction for holiday home investors, is of course rapidly growing tourism to Turkey. Visitor numbers grew throughout the financial crisis, but growth slowed. According to data from the Turkish Ministry of Culture and Tourism, between 2006 and 2010 Turkish tourism grew by just over 2 million visitors per year on average. But looking closer we see the numbers increasing by 4.8 million between 2006 and 2007, 3 million between 2007 and 2008 and then slows to around 700,000 visitors between 2009 and 2010. By 2010 growth accelerates again by 100 percent, with 1.5 million more visitors in 2010 than in 2009, representing a growth of 5.74 percent on the year.
According to the latest figures, visitor numbers were up 12 percent in the first six months of this year compared to the same period last year. This has been confirmed by the UN World Tourism Organization, which reported 10.46 percent growth in visitors during the same period.
The data also shows that Antalya was the most popular destination, with 32.8% of the tourists entering Turkey through its air or maritime ports. As Antalya is also the third biggest city in Turkey, it provides investors with a very strong exit strategy. Thus, Antalya is set to be a top choice for holiday home investors, who will come in increasing numbers in 2012.
According to the Association of Turkish Real Estate Partners (GYODER) foreign purchases of Turkish property grew by 40% in 2010. We have every reason to predict further growth this year, and next year.
3 of 5/Brazil
When it comes to Brazil, I am recommending it now, for the same reason as I recommended it in my top 10 property hotspots for 2011. Brazil is one of the world’s top emerging markets. The population is growing rapidly in numbers and in affluence and now foreigners can buy into affordable housing developments in the country’s emerging cities. Natal and Sao Paulo are my two favourites.
Both are growing into great metropolis and demand for property to buy and rent is soaring as people move into the cities from neighbouring regions to find better employment. On top of that both are host cities for the 2014 World Cup and are currently having their infrastructure massively upgraded. Those who invested in the right properties in Brazil this year have enjoyed good rental yields and capital appreciation and we will see more of this in 2012.
4 of 5/ America
All of the markets above are emerging markets, because I personally prefer emerging markets. However, in terms of property investment hotspots, the US will continue to present some great opportunities in 2012.
The US is still the world’s superpower. While China is the emerging tiger, or whatever you want to call it, the US economy is still several times the size of China’s in overall volume, in fact, it is bigger than China and India put together. America is having a hard time of it, but there is still plenty in reserve for it to ride out the crisis and return to growth.
Right now you can buy properties across America for 40 and 60 percent below their replacement build cost (self-explanatory, what it would cost to rebuild the property on its plot), which is a massive discount by any standard. What’s more the US rental market is booming. Investors are able to buy cheap and earn good rental yields. This means that their investments are already bringing returns, but when the US eventually does recover (and few doubt it will) the potential gains will become huge.
5 of 5/ Thailand
While the world’s property markets crumbled, many in Asia went into crazy-bubbletastic-overdrive, with Singapore property setting new pricing records every other week. Not Thailand though, for a mixture of its political situation and its feeling the effects of the financial crisis, it was hit as hard as the rest of us. Now it is making a come back.
Property prices have fallen but not far in the main hotspots like Bangkok. The real opportunity lies in emerging cities like Pattaya for buy to let investors.
However, my personal tip is the holiday villa market on Phuket and Koh Samui. Here prices have totally crashed and you can get massive bargains on ultimate-luxury villas. These have always been filled by regional tourists, and with that region now past any scares tourism to Phuket and Koh Samui is set for a strong recovery in 2012 and over the coming 5 years.
Comment by White Mountain: Personally, I would never invest in a far-flung investment locations, ie one outside the eurozone.
It seems & has proven so, clearly far too easy for a small political, legal or financial mechanism shifts to completely wipe out years of growth. . Take the US, around 20% variation in a short recent time dollar to gbp for example far outstrips many property investors capital growth.
I myself prefer to stay within a few hours flight of my investments, or where I share a similar culture, political system, legal framework etc, ie, something that are more linked to something I am familiar with. So for me this list of 5 is in fact 2, Romania & Turkey. Either would be a solid bet. I have access at probably 5 clients properties for sale in romania now that are between 40 & 60,000e that each would give 7 to 10% rental yield or annual return on investment (which is truly excellent in any investment market of any kind) & given that the market is bottomed out, only growth, even if slow, can follow. But each to their own, many will choose to invest in far shores & I wish them well with that.
Damian Galvin, founder, White Mountain Property