Global Real Estate: How to Spot Up-and-Coming Cities
If you have a high-risk tolerance and an international mindset, an investment in global real estate is a fantastic way to generate income and travel to foreign parts. In this article, we’ll explore some of the key factors to keep in mind when investigating global real estate investments.
Global Real Estate Investments are High Risk, High Reward
Westerners are priced out of their own housing markets in the world’s most popular cities – Paris, London, New York – and have to look further afield for attractive property investments. Global real estate is one alternative, boosted by excellent exchange rates, the possibility for double-digit returns, and the promise of a foreign getaway for vacation and retirement.
When hunting for global real estate, however, investors have to look carefully at not just the location, but also the currency exchange, economic outlook, and political situation.
Look for Excellent Exchange Rates and Stable, Emerging Economies
The currency exchange rate is the biggest advantage that property investors from developed countries have over the population in emerging markets.
Established global currencies like the Pound, the Dollar, and the Euro can be converted to lavish sums of the Rupee, the Rand, and the Ruble (to pick a few examples). This translates into much lower prices for goods, services, and property in emerging markets.
But these exchanges rates won’t last forever. As a foreign property investor, one of the best decisions you can make is to find an undervalued currency that has a good chance of rising in the future. This will make your purchase cheap in the here-and-now and bolster your ROI over time.
The absolute best place to buy property – if you have a high-risk tolerance – is in a country undergoing economic collapse that has driven the currency to all-time lows. If you’d bought property in downtown Moscow, Russia in the early 1990s or Buenos Aires, Argentina in the early 2000s, it would have cost you pennies on the dollar and you’d be sitting on a goldmine right now.
Yet, you needn’t only look for places in distress. If a country is opening up to the world for the first time in many years and the fundamentals look good, now might be the time to find an apartment in the capital city.
Seek High Human Capital, Infrastructure, and Strong Institutions
The world is getting more and more prosperous as free-market policies are adopted in the far-flung corners of the globe. The relative stability of the world these days makes it hard to pick a bad country to invest in.
Even so, you still you want to avoid countries that appear to be headed for war, social upheaval, and revolution and focus on countries that are likely to be more economically successful than others.
The best predictor of a country’s future success is probably the human capital that it possesses. A good way to determine this is looking at the Education Index, PISA test scores, and other determiners of education and innovativeness. On the flip side, you may want to avoid regions of the world that score high on the Fragile States Index.
Don’t overlook infrastructure and institutions either. The Soviet Union was a horror show, but it left behind a sizeable industrial infrastructure and a long history of science and education. Likewise, colonialism had its dark side, but many of the places colonized by the British – Singapore, Hong Kong, Barbados – inherited Britain’s classical liberal institutions, and have gone on to do well as a result.
Don’t Ignore Appeal of Weather, Architecture, Arts, and Scenery
Global real estate investment isn’t just about crunching economic numbers and looking at demographic statistics. These things matter, but tourism is just as important, especially if you plan to visit your property on a regular basis.
You want to find a place that the young and hip will one day gravitate toward – and those places tend to have great weather, pre-modernist architecture, an active art scene, and beautiful natural surroundings.
In our small, interconnected world where every street can be seen on Google Maps, it is hard to find the next tourist hotspot waiting to be discovered. Chances are, the investors and hipsters have arrived long before you.
Nevertheless, if you can find at least one or two major tourist attractions – and the city’s fundamentals are good overall – then the city is still a good pick for long-term global real estate investment. When in doubt, try to stick to coastlines and places that you personally would want to visit.
Learn from Past Global Real Estate Investments
It pays to learn from history. Look at the cities that exploded in property values over the last few decades and try to anticipate which ones will be next.
Taipei, Taiwan and Warsaw, Poland stand out as success stories that are off the beaten path. Had you purchased property in either during the 1990s, you would have made a fortune. That’s because these are places with high human capital, some history and tourist attractions, and economies that are quickly catching up with the developed world.
What are some possibilities for the future? Some parts of Vietnam, Turkey, Brazil, and Ukraine are incredibly cheap and have a lot local appeal in their own unique ways. Some of these currencies and economies are also beaten down and could be ripe for new growth. They’re not without their risks, though, which is part of the reason why they’re cheap.
Laws and Location are Keys to Global Real Estate Investment
Purchasing a foreign property in a high-risk country is not for the faint of heart, but if you want to get rich you have to take risks.
Before making the leap to purchase global real estate, make sure you know the country’s laws regarding property purchases. Hire a local lawyer who speaks both languages to help you out.
Visit the place several times before making a decision and make sure you know someone in the country who can check in the property from time to time. And don’t underestimate the importance of finding a good neighborhood. Just like in America and Europe, location is everything – right down to the street level.
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