1 Brazil:

We all know that I was right about this one. The only thing I was wrong about was that the Brazilian economy wouldn’t see any contraction during the downturn, because, — I believed — continued growth in Asia’s emerging markets would continue to fuel growth in Brazil. The Brazilian economy contracted by 5% in a very short space of time, starting from the end of 2008, but it has also enjoyed one of the fastest recoveries.

The contraction was like a very small blip compared to Brazil’s massive growth in the last few years. Recently reports have highlighted the fact that rising affluence has led to Brazil’s middle class being some 91million strong — a large proportion of the population. There are already signs of foreign investors flocking to capitalise on this massive growth in demand for affordable housing in Brazil. Then you have Brazil as a the World Cup host in 2014, and the Olympic host in 2016, both of which will increase tourism, affluence and bring increased sales and prices in the luxury sector. A resounding pat on the back there then.

2: Cambodia

Cambodia has suffered massively during the credit crunch. It was always a high-risk investment, and so the minute risk-appetite started to wean, sales of Cambodian property to foreigners dried up almost completely. At the same time the banking industry was hit hard, and so was the wider economy with the massive drop in demand for Cambodia’s key exports such as textiles and a massive drop in tourism. While I still think Cambodian property has bags of investment potential, my assertions of growth in the short term were badly mistaken.

3: Philippines

During the global financial meltdown the Philippines’ economy has continued to grow strongly, fuelled mainly by continued growth in outsourcing and worker remittances. Internal demand for property has remained strong, and it has benefited from resurgence in foreign demand from the second half of last year. That’s another back-slap I think.

4: Canada

Canada’s housing market has enjoyed a massive rebound throughout 2009, and in fact the government, which just months early acted to stimulate the market, was forced to look at measures to cool it.

This happened in several places around the world, because of a liquidity surge brought on by government stimulus into an economy that never crashed as bad as was expected and was seen in the worst hit parts of the world. Therefore anyone who invested in Canada property when I recommended it in 2008, is probably either sitting even and hoping the growth continues, or a little up and hoping the growth continues.

Those are just some of the questions dominating the minds of those with a vested interest in an overseas property resurgence. Of course I don’t have all the answers, all I can do is explore the questions and hope that a few potential answers pop up.

The biggest problem in working out what we are faced with in the coming year and beyond is working out what is really going on at the moment.

Take Florida for example; on one hand you have the reports of foreigners on buying sprees snapping up below-market-value properties, and on the other you have a tourism industry still completely on its knees, property values lower than their bricks and mortar replacement cost, and miserable expats stuck in negative equity. Both reports are true, which makes it hard to judge what the market will do this year. That is only one example; there are many similar paradoxes out there.

The most promising indication that things have been improving in terms of demand for overseas property, is the increase in coverage in a positive light in the national press. During the dark days positive press coverage for overseas property died off altogether; already this year I have read about how Brits are going mad for Marrakesh riads, and being bowled over by Bosnian fixer-uppers.

The common theme running through these stories could be looked upon as less positive however; that is the prevalence of cash-buying. As yet there has been no definitive research into the availability of finance for foreigners in property markets around the world, but according to most reports availability of mortgages is a bit of a moot point at the moment because nobody seems to want one.

There are a number of potential explanations for this:

• A: There are very few investors in the market, and lifestyle buyers are tending buy with their savings, which has always been the norm anyway.
• B: People are putting their savings into property as a tangible asset to hedge against for inflation and currency devaluation
• C: No one wants to touch a foreign mortgage because of the volatility of foreign exchange rates, and/or because property values could still fall leaving them in negative equity
• And D: The obvious reasons like lack of availability, mortgages being expensive for those with smaller deposits, and the continued risk many still face of losing their jobs.

There is also the fact that many people who took overseas mortgages, did so on the basis that the rental income from the property would pay the mortgage repayments, most agents now have more sense than to make such suggestions lest they make it a guarantee.

The good thing is that off plan appears to have survived the crunch. Thousands of people lost millions of pounds, dinars, euros and every other currency on off plan properties that will never be anymore than plans and pipedreams. But off plan is still the best way to buy an overseas property, not only because of the discounts but because it tends to be the only way foreigners can get a decent level of variety in overseas markets.

What has changed is that people are no longer buying on the strength of an agents’ word, they are conducting their own due-diligence at great length before making a purchase. But this can only be good for the industry, for the few shall no longer ruin the reputations of the many.

Another common trend that has emerged is the fact that buyers are favouring the safety of established markets over established ones, with Portugal and the Algarve, the Balearics and France expected to be three of the favourites in 2010. I don’t disagree with that but I also see a return to buying in the Caribbean and Asia in places like Koh Samui and Phuket especially.

I told you I would raise more questions that answers, but I hope the common theme that emerges from this article is that it is not all doom and gloom. Whatever the rhyme reason or method of payment sales have been increasing slowly since the middle of last year, and for the agents who learn what today’s buyer is looking for (safety and to quench their thirst for absolute knowledge about what they are buying) 2010 could be the start of a prolonged and successful recovery.

The National Association of Estate Agents have reported negatively on markets throughout the height of the downturn. But now, when the tide of international confidence has turned and things are looking brighter, their members would not be happy/would revolt if they were not to do everything they could to assist in the turning of public opinion, the increase in confidence and ultimately to increase demand for property in the markets they serve.

And, further, now knowing this I must ask: has all the information they have disseminated in the last 18 months been solely to be informative about international property, or to build credibility and add weight to the message when it became positive.

The article that made me ask this was on Spain, the NAEA’s Des Rowson, the organisation’s spokesperson for Spain saying that investors should buy quickly to capitalise on rising house prices in the country.

Apparently Rowson conceded that the Spanish market endured a "difficult 2009", before highlighting the bargains that are currently to be had. He said that while the organisation doesn’t expect any significant changes before the pound strengthens, but still sees a 3% growth over the year, for that reason Rowson said:

"So if you are thinking of purchasing a property, do so in the early part of 2010," he noted.

To say that the Spanish market had endured a difficult 2009 is like the understatement of the decade. Yes, there are bargains to be had but prices won’t grow by 3% unless they can shift the 1 million unsold properties — left from the construction boom that saw Spain build more properties than Germany, France and Italy put together. And this will need to be done quickly to leave enough time for a growth of 3%.

This is clearly an attempt by NAEA to spur on the sales increases that have already been seen, as I said, I don’t blame them for this, it is just an observation. In reality though, the recent sales increases have been from bargain hunters, but there is no rush to secure a bargain; banks are holding thousands of properties back to avoid flooding the market, there’s a good few months left before the end of discounts and distressed sales in the Spanish property market.

(Read full entry…)

It tells the story of the overseas property boom gone by, portraying buyers in a dim light, and then comes to a rather abrupt end as sharp as if the pen had run out of ink.

One point it does make that I do agree with is the fact that some of the new emerging markets that bubbled up just before the crash were based on little more than hype. I remember I said something similar at the time: along the lines of: about all it takes for a market to get the emerging market title is for a few developments to spring up and a few agents to promote it as so.

Apart from that the article portrays the buyers of overseas property in a very negative light, buyers whom Zoe Dare Hall was quite happily making her living off at the time.

Yes, a lot of people did get burned when bubble’s burst around the world, there always are casualties when asset bubble’s burst. And yes, some buyers did fall prey to unscrupulous fraudsters, and yet more to careless developers who failed to secure or stick to planning permission before marketing units off plan.

But that doesn’t mean that everyone buying overseas property, past, present and future is a low-wit imbecile asking to be robbed blind.

At the end of the article she writes:

It has left many believing that tangible bricks and mortar is the only way forward, but also a more hardened and wiser breed of buyer who now knows never to take anything on trust.

I agree with the different breed bit, it is true that those currently buying overseas property are doing so after conducting a lot more research. Whether this will gradually change over time is another story.

However, the current buyers are not avoiding off plan; a: because it is often the only option if you want to have a variety of properties to choose from in your chosen location, and b: because off plan property is still one of the most potentially rewarding investments in the world of overseas property, and the risk can be minimised by careful and extensive due-diligence.

That is not the surprising part; the offers that are achieving success are those that offer guaranteed rental to pay the finance.

Those kinds of offers were common before the credit crunch, but many of the people that accepted them were let down when the change in market conditions meant the rentals promised never materialised. Because of this they have been frowned upon.

Not that I am doubting the article is correct or the honesty of those quoted, unfortunately. All around there are signs that — because the credit crunch did not cause the complete collapse of the world economy that was feared — people and companies feel it is okay to go back to how things were before the downturn began; to go back to the same irresponsible behaviours that caused the crash in the first place.

The lessons that everyone thought would be learned from the crash have been forgotten. Signs like… estate agents getting excited about the rise in sales of multi-million pound properties when city banks began their bonus pay-outs. Signs like the FSA failing to regulate the amount people can borrow to buy property.

Signs like Britons buying Florida properties that were repossessed from the last wave of British buyers. The last one isn’t really relative to the point per se as the buyers of Florida property at the moment, are getting very good deals and paying in cash, however they are often buying before doing proper due-diligence and that is never a good idea. It is also poignant that foreigners are now buying up the repossessed properties in Florida, when it was primarily foreigners defaulting on loans that led to Florida having among the highest repossession rates in America.

All that said: I do actually believe that now is a very good time to capitalise on overseas property bargains. But only after doing even more research than I was recommending before the crunch; flights may have been reduced so check into that, some of the shops or attractions may have been shut-down, and these things are not as well publicised as openings of new flight routes.

There is one property in particular; in fact I just looked and it has been sold out. Property Frontiers were marketing some new-build houses in Ft Myers at a hugely discounted £35k starting price. The properties were not reliant on tourism or foreign demand, simply the rising demand for affordable housing to rent in a growing community with solid economic prospects. There are loads of opportunities like that.

Developments that would never have been advertised on the foreign market, because they would have sold well enough on the domestic market. Not to mention the offers you can get on the properties that you would expect to see, luxury off plan resort properties with free furniture packs, 20% discounts, maintenance fees paid for 2 years and much more.

Another good thing about buying now is that the buyer holds a lot more power than during the good times. It is fairly easy to negotiate the kinds of offers mentioned above, and/or money off the final price, a more favourable payment plan, and… you get the idea.

So, as the Average White Band sung: Let’s go round again. I just hope that when the current hype dies down we do spare a thought for the fact that we caused the crash, so that it may prevent us from causing another — I always was an optimist.

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The news is conflicting. On one hand we hear that rents are down, and on the other we hear that apartment prices in the prime areas have risen 8%, following a rise in villa prices also recently reported.

Another recent report by Japanese investment bank Normura, tells of a Dubai in 2011 filled with apartment and office tower blocks with no one in them. The report from Normura said so many offices and apartments are due to come on market in the next two years, that unless the current population decline is reversed and 150,000 jobs can be created, then they are going to lie empty. The latest report from Nomura estimates that around 25% of Dubai’s office space is currently empty with around 5% in Abu Dhabi.

This comes after similar warnings of population reduction from several other big names from recent weeks:

• Jones Lang LaSalle says Dubai’s population could decline 10% this year
• Egyptian based bank EFG Hermes says that the UAE population as a whole could contract by 5.5%
• The vacancy rate is expected to rise over the next two years as projects that are already under construction reach completion, and rents are expected to fall a further 10%.

To counteract these reports come the announced 3rd quarter profits of $178m from Dubai’s biggest developer Emaar properties. On Wednesday land sales in Dubai totalled 189.65 million Dirhams (31,680approx.).

Also on a positive note a new report by the Standard Chartered Bank in Dubai commented on how there is massive growth in the development of Small and Medium sized enterprises in Dubai, and they are contributing growing amounts to Dubai’s GDP. According to the report these new businesses are vital to Dubai’s survival because they bring it away from markets that it is too heavily reliant on like oil and micro-carbons.

There is also a report today of a 19.5% increase in traffic through Dubai international airport, and many reports of literally dozens of real estate funds entering Dubai to buy distressed properties.

So, what does all this add up to for the property market? Well, everyone knows I have never been the biggest fan of the Dubai property market and that isn’t about to change anytime soon.

The news on SME’s driving employment is good for Dubai’s long term future, but in the short term you just can’t argue with the hard figures: there is far more residential and commercial stock than people looking to rent or buy residential or commercial units, and this is only going to worsen with stock increasing as the population decreases.

As for the funds: sure they will take a lot of the stock off the market but they will ultimately be looking to make a profit. Their determining what the market does with their decisions on when to hold, and how many units to release at a given time is not good news for buyers. Therefore the funds are not good news for the market either in the short term.

If you want my opinion: — and you obviously do if you have taken the time to read this far on my blog — it will take at least 2-3 years and probably at least 5 for enough of the small and medium sized businesses of today to become big enough to really impact on the market. We will be looking to at least 2015 before the memories of Dubai’s dark side are sufficiently subsided for there to be any real interest from private overseas buyers.

By 2015 the oversupply problem should be manageable, and rents should start to see some steady increases again. It is up to you whether you want to buy now and wait that long — and probably a fair bit longer — for any real return on your investment.

Don’t get me wrong, Dubai is great for businesses; facilities and infrastructure wise, and you can get some great office space very cheaply and getting cheaper. But as I deal in residential I am saying 2015 before it is worth buying anything residential in Dubai.

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This trend is so great that we felt it needed to be addressed; exactly what qualifies as a cheap property in Spain? The answer can be applied to other countries and other buyers as readers see fit.

Firstly, one must remember that a property being repossessed is the end of a process. The time this process takes is usually one of the least pleasant times in the former owner’s life. It is likely that the former owners would have suffered from some form of depression during this time, and/or at the very least deep anxiety and apprehension about the future.

When a person feels like that, going about the business of an average day becomes difficult, let alone the upkeep of a property.

There is also the fact that the people being repossessed now are in large part those who have overstretched themselves to buy a home on 100% finance and/or at many multiples of their salary.

Bearing these facts in mind it is likely that a proportion of repossessed and distressed sale properties will need substantial work to bring them up to standard.

Another thing that people fail to consider is that the banks offer the best repossessed properties — i.e. a foreigner that had defaulted on the loan of a luxury property that had hardly been used — to their staff and their family members. This means that the proportion of poor quality properties among distressed property sales in Spain is increased further still.

Finally, there is the fact that Spanish property, for the most part was grossly overvalued during the boom years, by as much as 40% according to some analysts. This means that when you see a property at a discount of 20% or 30% off its peak price for a quick sale, the property may only just be realistically priced, not cheap and not a bargain.

So, what is a cheap property in Spain? The answer is: the same as a cheap property anywhere; a property that you bought for a good price, and that when it is up to a liveable standard, is valued at more than it ended up costing you.

Therefore, to buy a property that is cheap, one must do a lot of research into the area and also go and see the property to assess its quality vs. its price.

Thus, repossessed and distressed properties that are selling so quick that you don’t have time to go and see them first, are not necessarily cheap. It is a Russian roulette; you may well buy a property that proves to have been cheap for what you get, but you may end up with a complete nightmare.

It is up to you whether or not you want to take the gamble — there are some at such low prices that they have to be worth a punt. In closing: repossessed and distressed property sales ads tend to pressurise people into snap buying, when in reality you should always go and see a property before you buy it.

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Panama

You will see Panama every time I talk or write about the best emerging markets in the world for property investment. Regular readers of mine will know that this is because of the expansion of the Panama Canal.

The Panama Canal, or rather revenues earned from its operation makes up for a large portion of Panama’s services sector revenue, which in turn contributes a third of the country’s GDP.

Panama’s GDP growth averaged 10% in the last few years on the back of massive growth in tourism, including medical tourism and call-centre services. Even now during a global recession the International Monetary Fund is forecasting 3% growth for Panama this year. The expansion of the Canal is due to be completed in 2014, at which point analysts expect that it will boost Panama’s GDP massively.

All these things are making Panama a magnet for investment. This, in turn is playing a part in Panama’s continued GDP growth in a self-perpetuating cycle of growing foreign direct investment (FDI).

The Panama real estate market is also strong, again on the back of the massive tourism growth but also because Panama has the largest market-share of American retirees purchasing their retirement homes. The country is also very popular with American lifestyle buyers. Add to these the growing number of buyers from around the world and you can see why both Donald Trump and Hilton are currently constructing sky-scraping multi-use developments in Panama City.

The final bonus is the low prices of property currently on offer in Panama. Panama City — the capital — has seen values grow massively but you can still get a luxury 1 bedroom apartment for £120-140k, and a studio for about £70k.

However, if you look to the new emerging areas you can pick up some real bargains. There is one development that always springs to mind: the Bala Beach resort development, which offers 1 bedroom apartments, beach-front to Maria Chiquita Beach for £55,000. I know one company (I trust) that is selling the Bala Beach development; Azure Overseas.

As always, and as regular readers will know, I recommend that buyers do their own research, including at least one, and preferably multiple trips to the country. Things to check are the developers track record, financial situation, and to make sure that the land-ownership is secure, and that building permissions are in place and being adhered to.

Albania

Again, I always put Albania in these lists because I just love it. There are internationally marketed off plan developments available, allowing you to buy luxury property very cheaply. The fact that the properties are built to target overseas buyers and Albanians means that today’s investors will be able to sell to Albanian’s when they decide to cash-in their investment.

Albania’s government has an excellent fiscal track record over the last decade. Between 2002 and 2006 they successfully brought a quarter of the nation’s poorest out of poverty. Albania then became a middle-income country according to the World Bank’s classification. This allowed Albania to borrow money from international banks instead of relying on handouts.

Between 2002 and 2006 the economy was growing strongly. When this continued into 2007 and 2008, the government took advantage of its new status and took out a series of massive loans from international financial institutions. These included a massive loan from the European Bank for Reconstruction and Development to build a new terminal at Albania’s largest port in Duress, as well as renovating the existing terminals.

Even when the international downturn set in, Albania continued to invest in future economic growth, taking out another major loan to complete a super-highway linking the port of Durres to inland Kosovo.

This will boost the economy massively for years to come, by making it the quickest route for Kosovo exports, and also increasing tourism from land-locked Kosovo to the Albanian beaches. The latter also could be a holiday rentals market for foreign investors in coastal areas like Saranda.

Again, the future is bright for economic growth in Albania over the next 10 years at least. Not least because Albania is in the process of trying to secure entry into the European Union by 2014/15, which will increase economic growth by boosting exports, tourism and other parts of the services sector.

Again, economic growth in Albania will push up property prices: economic growth means increasing employment, increasing wages and increased affluence. This leads to increasing living costs, including the cost of building materials and labour.

This automatically increases property prices at the rate of inflation. But because property in Albania is so cheap, the increasing numbers of foreigners buying for investment and/or accommodation as businesses move into Albania could push prices up much faster. This will also boost the residential rental market and push rental yields up from the current 4% to 6% in the next 5 years.

India

In India it is simple: the population, and more importantly, the middle class population is growing far faster than property development can keep up with — as the thousands of students pour out of universities and into gainful employment in one of the world’s fastest growing economies. The IMF forecasts 5.4% GDP growth in India this year.

This translates to massively growing demand for affordable housing for the foreseeable future, which will put upward pressure on property prices == especially when developers inevitably run out of land to develop in the cities.

There is also the dynamic mentioned above, where rising living costs makes development more expensive and adds to the upward pressure on prices.

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