2010 and International Property: Turning Rebound into Recovery... Starring Supply & Demand

2010 is shaping up as the year when things really get moving again in the world of overseas property. 2009 will be known in history as the year the rebound started, and 2010 will determine whether or not the rebound turns into a full scale recovery.

In terms of a property market recovery this looks like being determined by 2 main factors, supply and demand. Before you slap me for stating the obvious, what I mean is: whether demand will continue to rise as government and financial stimuli are removed, and whether or not construction firms can uncurl themselves from the protective ball they rolled into quickly enough to prevent the recovery from stalling.

Sure, this is not the case in all markets; Spain and Dubai are shouting out at me as completely different situations because they are struggling to see any real rises in demand, and have oversupply sufficient to last about 5 years unless sales accelerate rapidly. None the less, that is a pretty good model.

Turkey fits that model perfectly: new home sales in Turkey were 14% higher in the first nine months of this year than last year, and demand has continued to rise, meanwhile construction contracted by almost 20% this year. Now we must all watch and hope that construction can accelerate fast enough so that demand needn't stall on the way up.

Apart from some exceptions, Asia has the supply balance about right for the most part. Thailand is a good example: Thai property developers abandoned the international market early in the crisis, to concentrate on domestic demand, for which they ramped up their development plans; launching new projects throughout this year, so there should be plenty of supply there.

Malaysia however, is now looking at an oversupply problem as developers all (uncurl from their protective balls) come out of the blocks at the same time.

Montenegro could be the one to watch in 2010: when the international crisis came down, most of Montenegro's developers were locked in the country's lengthy planning stages, which meant they were able to simply hold off their plans, without having to cancel developments, or make any kind of announcement. In fact Montenegro has probably been the least talked about market in 2009, and the say no news is good news.

According to a conveyance I interviewed a while back for an article in Overseas Property Mall, many Montenegro developers were left holding land-banks, rather than those in Dubai holding half-finished developments and headaches. 2010 will be the year when all those plans are relaunched, and any that aren't will represent an abundance of cheap land for sale in Montenegro, for any new developers that want to enter the market. The only thing Montenegro will need to watch out for is over-supply, but with the country's lengthy planning phase that really shouldn't be a problem.

Top 3 Property Investments for 2010

I have seen a lot of articles in the last week or 2 highlighting the best property investments for 2010. Brazil has been on every one of them, but it won’t be on mine, and you’ll quickly understand why.

1: Turkey

Turkey received over 28 million tourists from around the world in 2008 and there is every indication the number has grown slightly this year. According to government officials they are still on track for their target of 30 million by 2010.

In 2008 they received 1.5 million British visitors. This is expected to be 3 million by 2010, not least because of the strong Euro.

The simple fact is there just aren’t enough commercial accommodation slots for such massive numbers of tourists, which brings rapidly rising demand for privately rented holiday accommodation in Turkey.

This is set to be further boosted as tourism continues to grow and as more and more people use the internet to compile their own package holidays for better quality accommodation and cheaper flights.

Then you have the value for money factor: Turkish property at its low prices always offered fantastic value for money. However, now that the Euro is a lot stronger against the pound, whilst the lira is weaker than its previous long-term average, Turkish property is offering even greater value for money.

According to realtors, Turkish property owners are currently fetching yields upwards of 6%. This is already very impressive and will grow as demand for rental property grows faster than prices in the next 2 years.

2: Egypt

In Egypt’s case it is also rising tourism and low property prices that make it one of the top overseas property investment destinations for 2010.

In our opinion the Red Sea Riviera, especially Hurghada is offering the best opportunities. There are currently dozens of apartments for sale in Hurghada offering guaranteed rental yields of 10 or 12% for 1 to 5 years.

This is because you can buy a 2 bedroom apartment in Hurghada for less than £40k and rent it for about £350 per week. giving a gross yield of 13.94% gross from a very conservative 15 week (32% approx) occupancy. If you make it a more realistic 60% (30wk approx) the gross yield is 25%. Now you can see why Hurghada properties come with such exceptional guaranteed rental yields.

3: America

Whatever we think about America, it is still the largest economy in the world, and it still owns the currency we all base trade on. Properties in America are currently being sold at between 10% more than in 2007, to about 40% less than they were worth in 2007, depending on where you look. Not to mention the tens of thousands of distressed and repossessed properties being sold at discounts of up to 60%.

It doesn’t take a rocket scientist to pick a property that will make a 10% rental yield or maybe even a little more, and to grow as the local economy recovers. Nor does it take a rocket scientist to also make sure that property is capable of regaining its 2007 value in a reasonable amount of time.

Investors doing the calculations on carefully chosen properties are coming up with yields of 140% – 200% after 5 years.

We also like Malaysia because of its strong economic fundamentals, stable property market and favourable tax laws, and India because it is set to see demand for property continue to outstrip supply at an alarming rate.

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Overseas Property Investment Comes Back in, Causing the Emerging/Established Market Debate

Things are really starting to move again in the world of overseas property investment. At present most private residential investors, and a large proportion of commercial entities as well are focusing their investments on distressed and/or heavily discounted opportunities, which exist predominantly in established markets.

In fact before this week even property price growth in emerging markets was being portrayed as a bad thing, because of fears over the formation of the next bubble -- if only we had all been so cautious between 2004 and 2007.

This week I came across the first positive reports on emerging market property investment:

Firstly a report on the Thomson Reuters survey of investors, which found that 85% of investors are expecting Asian property to yield over 10% next year, with only 13% expecting European and US markets to match such growth.

Then a report in Moneyweek, which said apart from a few "bright spots" in Europe, Australia, and Canada, it is only selected emerging markets in Asia, and the likes of Brazil which offer any real chance of major profits from property investments.

That said: buy to let is regaining its former glory. The likes of Florida, Orlando, Tampa etc and other emerging economic regions like Detroit seem to be presenting an absolutely fool proof buy to let investment opportunity. Whereas before you could only find guaranteed yields of 10% in emerging property markets like Egypt, now there are many heavily discounted properties in the US and other established markets with similar guaranteed yields.

It is hard to decide which is the best to go for: do you bank on tourism rising to previously seen levels earlier than the local and national economy recovers to sufficient levels for employment to start rising.

However, unemployment is often the last thing to turnaround after a recession, especially one as severe as this one, and so tourism is likely to recover faster in the near-term. That means choosing areas of rapid tourism growth for your investment, which in my opinion highlights Hurghada in Egypt, the north east of Brazil; Natal and of course Orlando and Tampa in Florida.

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Dubai World Restructuring Won’t Affect Property Market – Yeah Right!

OMG I nearly chocked on my coffee for trying not to laugh at this statement: "[the Dubai World debt restructuring] will have no significance [on the real estate sector] because restructuring is a normal word."

The statement comes from one Abdul Majeed Ismail Al Fahim, chairman of Dubai Pearl, speaking to Arabian Business.

He is right; restructuring is a normal word, and one which has been used so much in the last 12 - 18 months that it has almost become white noise in the global-economic newsroom. So, if this had simply been a case of Dubai World "restructuring" its debt then yes, the negative effect may well have been minimal.

That is: if it hadn't been made public that Dubai World had been forced to ask its creditors to postpone its debts, before there was any talk of the word "restructuring". But there was, and because there was we analysts have been able to fill in the blanks and have done so in national newspapers from Arabia to Zimbabwe (excuse the potential for a slight exaggeration there).

The real story goes: state-owned Dubai World is financially incapable of honouring its debts, and the real financial powerhouse of the Emirates (A.K.A Dubai’s rich uncle) refused to bail it out any longer, so it was forced into its current situation. Now the world looks on to see how much of a lesson the rich uncle wants to teach its easily led nephew.

Because of the way the story unfolded this is almost certain to have a negative impact on the property market. After shedding almost 50% in less than a year, Dubai property prices rose 7% in the 3rd quarter according to Colliers international. But one of the market’s biggest potential obstacles was always going to be residual negativity about the crash.

This had obviously began to fade as prices started to rise, but the Dubai World fiasco is bound to set back international sentiment by reminding us all just how much money fell into the Dubai pit never to be seen again.

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Bulgaria Property Finally Making the News for the Right Reasons

The Bulgaria property market has been getting a lot of attention lately, most recently because the government has stopped allowing people to pay in cash when buying property, and because a major new developer is currently assessing buyer demand with the launch of a new development that has been in the pipeline since 2007.

The announcement from the government is undoubtedly an attempt to reduce corruption and money laundering in the property market, which will no doubt be reassuring for foreign buyers in the long run.

The developer, Immorent has launched a new 200 unit apartment development in the high end Simeonovo district of Sophia. Immorent will only be starting construction on the development if sufficient demand emerges from the domestic and international markets. They are not aking deposits or anything like that, just allowing people to register their interest at this stage.

Managing director of the firm Milen Petrov told Overseas Property Professional magazine that despite Bulgaria's dramatic price falls, there was still a lack of good quality product on the market. But the company wanted to assess demand before starting construction.
"We don't need the money from sales to start building," he said. "We purchased the land in 2007 and the project has been in the design stage since. But the big question now is whether to start or to wait."
The company are planning to target the upper-middle end of the market both in Bulgaria and abroad, Petrov added. "We would prefer local buyers who want to live in the properties but we are also marketing to Russian buyers, as well as UK and Scandinavian investors and even nearby Macedonians."

The commercial and retail sector of the Sophia property market have also been making the news recently, including the opening of the European Trade Centre, a five building office complex and shopping mall, now scheduled for Spring 2010. Those sectors ultimately stimulate demand in the residential sector, and my gut tells me that the Immorent development will go ahead.

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