As Expert notes, demand has been growing noticeably for three years, but until last year it did not happen so quickly. For example, in 2006 it increased by 60% compared to 2005. Specialists believe that in 2008 the trend will not change. The main reason for the increase in demand is the growth of prosperity of certain categories of our citizens. It forces them to look for places where they can invest surplus funds so that they generate income or, at least, do not depreciate. Real estate abroad seems in this sense a quite reliable sphere.
Asian Priorities
According to the American research company Global Property Guide, in 2007 the US real estate market collapsed, the European market slowed down, but the Asia-Pacific region began to develop.
On the global market, Bulgaria led in real estate price growth – 30.6% (accounting for inflation – 15.4% for ten months of 2007 compared to the same period in 2006). Next comes Shanghai, where the market is highly overheated and, despite government efforts to cool it, showed price growth of 27.85% for ten months of 2007. Third place is Singapore, which is considered the most attractive for investment: with price growth of 27.6%, inflation there was only 2.66%. Prices increased by more than 10% in the Philippines, Colombia, South Africa and Hong Kong. However, accounting for inflation, the figures will be lower.
In Europe, real estate in most countries barely increased in price, and in Ireland prices even fell. This happened for the first time in 15 years: experts noted that this was the longest period of real estate price growth among developed countries.
Latvia took 12th place (10.22%). Estonia and Lithuania – fourth (23.38%) and fifth (13.64%) respectively. However, accounting for inflation, the picture looks less rosy for them: for example, for the Latvian real estate market, real price growth turned out to be negative (–1.02%, 29th place in the overall ranking).
Choice of Location
Realtors claim that the British and Irish are usually the first to "discover" new countries where it is profitable to invest in real estate. And this has become a certain signal for investors from around the world. After heating up the market, they sell real estate at the peak of demand and move to another country. The British specialized internet portal Homesgofast.com, based on a survey in January 2008, determined which countries are most popular among the British for real estate investment. In first place was Dubai, where there are no taxes on real estate and income from it. Then come Brazil and Egypt – due to view apartments on the seafront. Despite the dire state of the American market, the British have interest in the states of Florida and New York. In fifth position is Turkey, due to the potential of the real estate market and strong tourist flow.
But Russians' preferences do not always match the British. According to statistics (only transactions through Russian agencies are considered), Bulgarian (23%), Montenegro (17%) and Spain (16%) are in high demand among Russian citizens. But not all transactions with foreign real estate go through Russian real estate firms. Often Russians, explained Marina Vasilyeva, head of the foreign real estate department of the agency "Advex Real Estate", go to the country and buy real estate through a local agency or from a developer. In her opinion, Cyprus may actually be in second place in demand. Also, according to international experts, about half of real estate buyers in the Emirates are Russian citizens, and in the segment of luxury real estate costing from $1 million, even 70%.
To Schengen, to Schengen!
Houses located on the shores of warm seas, in resort areas are still in demand; demand for investment purchases is growing, and demand for exotic countries has appeared. According to Marina Vasilyeva, in the segment of real estate for a seaside vacation, Bulgaria and Spain are still preferred, but houses in the south of France and Italy are also in demand. At the same time, in Bulgaria, the majority of buyers are interested in properties worth up to €300 thousand. Vasilyeva notes a low demand for Turkish "dachas": "Why buy when you can go on a cheap vacation? Besides, Turkey is not very calm: military actions on the border with Iraq, NATO base, etc."
Apartments on the coast that can be profitably rented out (Spain, Portugal, France, Italy) or in the future get an increase in value (Montenegro, Bulgaria, Turkey) also elicit buyer interest, notes Alexei Pavlov, a specialist in foreign real estate at Belle Fleur. Today, Bulgaria offers the cheapest properties. "However, the price rises by several thousand almost every two months," says the expert. "You can no longer buy real estate on the coast for €30 thousand, as two years ago."
Interest in Montenegro, realtors say, is limited by the size of the country. According to Alexei Pavlov, demand growth here is already low due to the lack of available loans and high prices. Marina Datskevich, manager of Interestate, also notes the high average price of Montenegrin real estate – €5 thousand per m2 – and believes that buyers will dwindle in two to three years.
In addition to resort real estate, people are increasingly interested in apartments and houses in Europe. According to Shamil Muzafarov, head of the commercial department of the real estate agency "Soyuz", the greatest interest in this segment is in countries where the economy is more or less stable and the authorities guarantee property rights. In particular, Hungary and Austria are showing steady economic growth today, but Germany is considered the most economically stable country.
In addition, Marina Vasilyeva includes the Czech Republic, Finland, and Switzerland in the list of interesting European countries. Most properties in Finland near the Russian border have been bought up by residents of St. Petersburg. Now, according to Vasilyeva, their buying interest is shifting further from the border, to the south of Helsinki. "Owners of properties there no longer want to drive to Finland because there are frequent traffic jams and queues at the border," she explains. "They prefer to fly, which gives them the opportunity to buy property not only close to the border." Nevertheless, the main reason is not comfortable vacations in neighboring Finland, but unhindered entry into the Schengen zone.
The third direction – property in countries exotic for our compatriots – is still developing. According to the head of the foreign real estate department of the legal information agency, Ekaterina Belova, "exotic countries, for example in Asia, have become more interesting to buyers, demand for them is growing." Among such states, real estate agents singled out Panama. According to Pavlov, "affordable loans and a dynamically growing economy make buying an apartment in Panama a profitable investment." Shamil Muzafarov claims that it is also profitable to acquire commercial properties in Panama, particularly tourism infrastructure. In winter, Muzafarov notes, Canadian and American tourists like to vacation in Panama, which also drives up prices for Panamanian real estate. Marina Datskevich says that demand for the UAE is growing, and along with it, prices: they increase by about 30% every two months.
Non-residential preferences
"Residential real estate certainly leads in demand," says Ekaterina Belova. "The purchase budget is mainly up to €100 thousand for an apartment and up to €300 thousand for a house or villa." In addition, in the residential segment, there is a significant shift in demand towards the primary market. "Secondary properties are rarely sought after. And even if a client comes with the goal of buying a secondary market property, they often end up buying new housing. From a return on investment perspective, the primary market is better because there are no issues with the property's history and it can be rented out through a management company created by the developer themselves," explains Marina Vasilyeva.
Non-residential properties are still rarely purchased, say real estate agents. However, the increased interest in investment purchases will inevitably lead to growth in demand for commercial properties. "Investors are interested not only in investing in residential real estate for vacations or rental income, but also in investing in non-residential properties to develop their own business or lease out the property, which brings greater profit," claims Ekaterina Belova. "Currently, investments are very clearly being directed into new markets where there is not yet high consumer demand. This is linked to hopes for their further development and, consequently, increased investment attractiveness."
According to Shamil Muzafarov, today non-residential real estate is of more interest to those who already own residential properties abroad. At the same time, he notes interest in industrial real estate: "The main money goes into industrial, not residential real estate. Investments in construction, for example, of a cottage village, are a riskier venture because many Europeans prefer to live in houses built according to individual designs. A standard cottage village does not offer that possibility, so it can be difficult to sell houses under construction." Furthermore, according to Muzafarov, higher returns compared to residential real estate speak in favor of non-residential properties.
Marina Datskevich claims that it is difficult to single out a leading segment that interests buyers of non-residential properties: tastes and preferences are too varied. Requests include warehouses, sawmills, and land plots for construction, not to mention tourism infrastructure facilities.
In response to your request…
Demand in the foreign real estate market is not always matched by supply. In order to trade properties in a foreign country, agencies enter into agreements with local real estate firms or developers. Moreover, finding a suitable partner often proves difficult. Thus, agencies can often only offer buyers the properties that foreign partners essentially impose on them. As a rule, they offer what they want to sell, says Marina Vasilyeva. At the same time, in the commercial real estate sector, one often encounters ready-made business – and always at the maximum price. According to Marina Datskevich, in order for an agency to follow demand rather than dictate to the buyer, it must have many partners in a large number of countries.
As experts note, properties are now appearing that are being resold by our compatriots. For example, in Bulgaria and Montenegro, properties bought two or three years ago are being listed. According to Datskevich, there are offers from citizens reselling apartments in Dubai's skyscrapers under construction. One can make money on this even before the property is completed, since construction takes a long time. Compatriots who put up apartments for sale in Dubai managed to earn up to 50% per annum.
And have you been to Tahiti?
The British point of view on the prospects of the global real estate market in 2008 was published by the Daily Telegraph. According to British experts, among the most investment-attractive capitals in the world are Riga, Tallinn, Vilnius, Bucharest, Bratislava, Prague, Budapest, Dublin, and London. The minimum yield in these cities could be 67% per annum.
Global Property Guide, having analyzed the situation on the global real estate market, issued recommendations on the most attractive countries for investment. In particular, American analysts do not advise buying real estate in most European countries in 2008, as the market there is currently overvalued.
According to the Americans, real estate in the Baltic countries rose in price on the wave of economic growth, but property yields have fallen. Some areas of Eastern Europe, in their opinion, are correctly valued: despite the fact that the real estate boom there lasted a long time, it is not yet complete. This makes purchasing properties in Sofia, Bratislava, Bucharest, and Budapest interesting. For example, Sofia has managed to maintain its investment attractiveness despite growing investor interest in Bulgaria's ski resorts. Budapest is praised for its calm market situation. Bratislava is still considered undervalued, as are other parts of Slovakia. Also undervalued and therefore suitable for investment, according to analysts, are many European seaside resorts, particularly in Greece and Turkey.
Good returns can be offered by the "newly discovered" Abu Dhabi and Oman. Investment in Jordan is not prohibited while prices in Amman are low. Egypt is considered promising: high yields, low prices. But investors are put off by the unpopularity of this depressed region. At the same time, American analysts do not advise investing in Dubai with its unclear construction completion timelines, at least for individual projects, nor in South Africa, where a market reshuffle is expected after the 2009 elections and a cyclical cooling after five years of growth.
Despite the rise in prices in 2007, the Asian region continues to be considered promising, as the market is still undervalued. China is interesting, but it is closed to many investors: non-residents are not favored there (except for developers). The peak of real estate price growth is expected after the Shanghai Olympics. Today, the return on investment in Shanghai real estate is estimated at 8% per annum. Prices will also rise in Australia, while the New Zealand market is set to take a rest.
Due to the slowdown in key industries of the US economy, many Caribbean countries are now overvalued. The average price of 1 m² of housing in the Caribbean has reached $4,000. The best returns are shown by countries with growing economies: Argentina, Uruguay, Colombia. In terms of payback periods through rental income, the island of Tahiti is considered the most interesting (7 years). Second in attractiveness is Chisinau, the capital of Moldova. Closing the top three is Jakarta, the capital of Indonesia. In the post-Soviet space, Kyiv follows Chisinau. It is least likely to recoup investments in Monaco (yield 2.43% per annum) and Singapore (2.8% per annum) – this would take about 40 years.
Everything Will Rise
According to realtors, the situation regarding demand for foreign real estate will not change in 2008. "Demand will undoubtedly increase, and along with it, the value of foreign real estate will rise," believes Alexey Pavlov. "I can definitely say that demand for foreign real estate will grow," says Ekaterina Belova. "But some instability is expected, both in real estate prices and demand. I believe the US crisis will leave its mark on real estate markets."
Shamil Muzafarov is confident that demand for commercial real estate will increase: "Industrial properties, logistics facilities, and industrial land for independent construction will be purchased."