Investments in real estate abroad: Myths and Reality

12.10.2010 17:12
Articles about real estate | Investments in real estate abroad: Myths and Reality Thanks to a two-year crisis, we have made a stunning discovery: real estate is not always expensive, and sometimes falls in the price. And this does not guarantee, no country and no city in the world. If, before the crisis, investing in real estate are many fairly simple affair, now, private investors are forced to develop a strategy and assess the risks.

Not so fast
Investing in Real Estate still remain highly reliable, somewhere about halfway between government bonds and equities. But the global crisis has shown that investments in real estate can not (and should not) be a means of quickly making money on the increase in project cost.

Related article: In Prague - the construction boom

- Buying property, you can never be sure to increase its prices, especially for a short period of time, - says Igor Indriksons, director of foreign investment companies IntermarkSavills .- But you're quite able to predict their income from renting it out. Here is confirmation of this indisputable fact: during a crisis overseas real estate investment trusts (REIT) lost a substantial portion of capitalization, but the revenues of their investors, derived from the lease, almost fell.

Real estate in general is not a highly liquid asset, and in many countries to the same rapid sales are subject to high taxes.

- For example, a tax on short-term profits in the U.S. could reach 50% at the federal level, as to him may still be added tax at the state level - says Alex Lisnevsky, president of brokerage firm Mercury Capital Group Inc. (California) .- Investing in real estate, as well as parting with overweight should be a strategic and long-term focus.

Of course, in different countries and for different types of real estate is different and liquidity of real estate, and resistance to lower prices. In this sense, the crisis has dispelled some myths.

Firstly, the myth that most high liquidity has resort property. "It is just the opposite: if any cataclysms in the first place comes under attack is a resort real estate - says Director of the Department of elite real estate company Knight Frank Elena Yurgeneva.

- Recreation, the more expensive, does not apply to the most pressing needs, and on it in the first place begin to save. On the other hand, is known to be in a crisis the most profitable investment - in yourself, that is, in their own education. And so in times of crisis is the most stable so-called student property that is close to housing and educational centers. It will always be renters.

The second myth - that the most profitable investments in real estate luxury. Here again, the situation is reversed: the highest revenue yield investments in affordable housing, enjoying the massive demand.

- It is better to buy 10 apartments in the middle class than the one house in an expensive area, and try to rent it for an amount equal to the income from 10 apartments. Even if the three apartments you will be free, you will still receive 70% of potential revenue. And if you idle your cool house, you will have the problem of 100-percent vacancy rate, ie loss of income - says Alex Lisnevsky.

However, there are exceptions to this rule, and they relate to those points of the planet, real estate, which is clearly useful.

- Since the beginning of the year the average price of luxury housing in London have risen by about 8%, - noted the director of the Department of residential real estate company Chesterton Ekaterina Thain .- Bonus property in the UK capital is easy to rent and resell. However, it should be borne in mind that those objects that are in demand among customers, bring no more than 5-6% per annum. On the other hand, higher income from rental real estate can bring, which is difficult to resell.

Finally, the third to dispel the myth (and most offensive to many private investors) - that the developing countries (or relatively poor regions of developed countries) with low housing prices will definitely show high growth.

- Investment in UAE real estate and Bulgaria have brought losses to investors, expects to increase the value of their property - says Stanislav Singel, President of International Real Estate Agency Gordon Rock .- For example, overvalued real estate in Bulgaria, many developers are delaying projects due to zatovarennosti market.

Several real estate companies went bankrupt. In Bulgaria, unlike in most European countries and not developed enough domestic demand for real estate, especially in the ski and resort being built in based on the economic growth and external demand. As a result, Bulgarian property for sale today with a substantial discount.

Risk assessment
In this situation it is particularly important to assess in advance the risks of investment. "There is a fairly simple way to assess the prospects of real estate in the country - with rates of return from rental, - said Stanislav Singel .- The yield from the lease - the ratio of annual income from rental property for rent to the value of this object.

If the average return rate for a particular country is in the range of 5-9%, the real estate market of the country as a whole is characterized by a "fair" price level. 4% or less - the real estate market of this country is overvalued, and therefore risky. If the rate of return is 10% or more, the real estate market of this country is underestimated, which indicates opportunities for investment. "

For example, according to data cited in the report Global Property Guide for the first half of 2010, the highest yields in Europe in Macedonia (9.91%) and Ukraine (9.09%), the lowest - in Andorra (2,36% ) and Monaco (1,48%). Russia, incidentally, also at the bottom of the list (3.45%).

If we are talking about a specific facility, you can use the services of a large and reputable bank. And is absolutely free.

- Just Apply to the bank for a mortgage loan to a specific object, - advises Helen Yurgeneva .- If a bank refuses to lend the object, do not buy it even if funds are available. And if you approve the issuance of the loan, just say thanks for their work.

Method of fish remora
Every day and every hour a huge amount of real estate in the world take on international real estate investment trusts. Naturally, they do not do so under the influence of momentary emotion, but based on careful study of the situation in the country. Private investor, with access to public information (and the activities of these funds as transparent), can follow them and to get this serious dividends.

- I'll give an example of a particular transaction which gave me a 450% profit for the three months - says Igor Indriksons .- The Brazilian Government has long expressed the intention to finance the construction of a large number of economy class housing. Naturally, this should take off the shares of large developers low-cost housing. But when it happens allocation of funds, no one could definitely say: maybe a month, maybe a decade.

And then I read a message stating that one of the most successful investment trusts acquired a significant stake in the biggest Brazilian developer. The next day I buy shares of the same builder. Five days later, the Brazilian government announced the beginning of financing.

And three months later the growth of the construction company shares amounted to 450%. Incidentally, this is only possible in a country such as Brazil, where there is no law on insider information. In this case, the direct purchase of real estate economy class in Brazil would be complete folly: you simply could not resell it later. Purchase of shares instead of the real estate developer, as such - an example of indirect investment. Sometimes the chain is and longer.

For example, in Mumbai and is the mass construction of housing economy class, but there was no construction company that would be quoted on the Stock Exchange. But there are companies that produce cement, which are publicly traded, and their actions could make good money. Again, by itself cheap accommodation in Mumbai does not represent any investment value.

To all It should be added: if you want to invest in real estate, assuming use it for their own residence, then come into play quite different patterns. For example, you like the climate in Bulgaria and you're going to spend there most of the year, of course, it is logical to get there lodging. It is only necessary in advance to keep in mind that renting it out to the rest of the time will pay at most utilities.
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