In an interview on The Creating Wealth Show, Matthew Montagu-Pollock, the head of Global Property Guide, discussed his observations of the current state of the world’s real estate markets. From Australia to South America, he outlines what investors should be paying attention to in order to formulate smart investment strategies. See the following article from JasonHartman.com for more on this.
Australia and New Zealand Real Estate
Matthew launches this guided investment tour in Australia and New Zealand where favorable lending rates have helped markets buck the latest downward trend. Unfortunately, rates suppressed in the interest of economic recovery inevitably rise, and prices haven’t fallen far enough to warrant “a happy investor strategy.” As with much of the world’s property market, Matthew recommends delaying entry 3 – 4 years. The longer, slower cycles that distinguish real estate from the stock market’s sharp swings provide time to exercise caution instead of a headlong rush.
Developing vs. Developed Markets
Mortgage financing is a relatively recent concept in much of the world, where historically inaccessible lending has kept prices low. The notion that developed markets are inherently less risky was disproved with the latest collapse. In fact, developing markets often offer greater opportunity, including high rental yields which are a key indicator of opportunity for appreciation.
Asia Real Estate Markets
Prospects for investors in Asia are as diverse as the region itself. The more structurally sound markets are on the verge of a bubble. Authorities in Hong Kong and Singapore are ready to clamp down on lending and raise interest rates. Unfettered construction and soaring prices have left China’s market in danger of over-heating while the drop in gross rental yields from 10% to less than half that is a troubling sign. In contrast, Japanese officials are restricting development; rental yields are just average, and the stagnant market is nearly impenetrable to foreign investors. In Asia’s developing markets, political instability is disquieting to investors, especially in Thailand. The 12% rental return in Indonesia and the Philippines is deceptive because taxes erode up to a quarter of investments. Overall, Asian market policies favor landlords, while Australia is neutral.
Eastern Europe Real Estate
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Patience is the best investment strategy for Russia and Eastern Europe, where the collapse of Baltic states has led to price declines of 60%. Matthew advises waiting 5 years at minimum to allow time for economic stability to be restored, despite the lure of bargain property. The outlook for Hungary and Poland is more promising, with rental yields at 8% and 6% respectively. The forecast for the rest of Europe is more dismal. Because the strength of real estate is inextricably tied to the broader economy, investors should rule out Ireland, Spain and Italy where GDP growth is abysmal. Germany and Belgium can’t be recommended because foreign investors bear a heavy tax burden, while prices in the UK are peaking and favorable interest rates won’t last forever.
Middle East Real Estate
Dubai’s collapse has put it in the spotlight, but investors should have been forewarned by a precipitous drop in rental yields two years earlier. Elsewhere in the Middle East, political instability detracts from price appreciation in Jordan and Lebanon. Cairo in Egypt is an example of why Matthew is bullish on capital cities since they furnish a pool of expatriate tenants. Exotic Morocco and tranquil Tunisia also possess potential.
South America Real Estate
South America holds promise for investment, especially in Uruguay and Brazil. Rent returns in Sao Paolo are 7%, and the Brazilian government has set a course for growth. Despite its reputation, Colombia shines with its rich history, and rent returns are favorable in Lima, Peru.
North America Real Estate
The guided investment tour ends in North America, which Matthew predicts will be ripe for investment within 18 months since this market has nearly cycled through the latest crisis. Although Canada wasn’t impacted as severely as the US, its pro-tenant policies are a deterrent to investing.
Matthew ends the interview with encouragement for investors, praising real estate as a source of security in confusing financial times, providing a tangible asset and steady income especially for investors who adopt a hands-on approach.
This article is based on Episode 166 of Jason Hartman’s Creating Wealth Show. You can listen to the full podcast at JasonHartman.com, a real estate investment and wealth creation site.