When you take all the divisions out of the equation, overall the global residential real estate market does seem to be making a comeback, in most cases fueled by internationalised (cross-border) demand levels.
For example the US property market recovery has been driven by an initial recovery in Miami and Florida, which was fuelled by demand from overseas buyers who came in droves to buy distressed and repossessed real estate at bargain basement prices, with the intention of renting it out on the booming rental market. Other cities also saw similar demand from foreign investors, including Atlanta – anywhere where the rental market was strong and there were plenty of distressed bargains.
At the same we have multiple reports of resurgent foreign demand in many emerging markets that were popular during the boom, including Morocco, Costa Rica, Albania, Mexico, Turkey, Malaysia, Thailand (including Koh Samui and Phuket), Croatia, and Montenegro, as well as new markets like Indonesia and Peru. Amidst these reports there is a division; some reportedly seeing their resurgence fuelled by investors are others by lifestyle buyers.
Obviously every market is different but the results are not what you might expect. For example, according to the latest report from the US National Association of Realtors 28% of foreigners purchasing property in America were buying as a vacation home for their friends and family, while 16% were purchasing for investment, and a further 13% for both of the above (holiday home buyers planning to rent out their property/investors planning to holiday in their rental property). You would expect that the US would be dominated by investment buyers but this is clearly not the case.
Lifestyle buyers are also behind the resurgent Montenegro, which leading real estate firm Savills is tipping as an upcoming property hotspot for 2013. The World Travel & Tourism Council believes that Montenegro's tourism sector will be the fastest growing in the world over the next 10 years. Savills highlight the low property prices in comparison with regional competitors like Croatia as well as the growing tourism market as making it a good choice for investors.
"Prices in Montenegro are currently about 40% lower than Croatia and we also benefit from being part of the Euro zone, which with the Euro weakened against Sterling provides further value," said Aleksandar Kovacevic, sales director at Savills Montenegro. Montenegro uses the Euro, because it previously used the Deutsche Mark and when that became the Euro in Germany, Montenegro automatically switched. The EU isn't thrilled about this, but it doesn't do anything either.
However, according to Kovacevic most of the buyers are currently lifestyle buyers, and it is lifestyle buyers who have kept Montenegro in the limelight of international property. Throughout the last few years several reports have highlighted Montenegro's resilience against the downturn, resilience caused by the fact that wealthy lifestyle buyers have always been the dominant force in the market, meaning owners who will often sell only through choice, and so will hold out till they get market value.
According to Kovacevic, prices gained 5% in places with super prime properties and low cost properties being the most resilient, and lifestyle buyers dominant. Montenegro has long been tipped as a possible investment choice, not least because it is firmly on track to becoming an EU member, which has a track record of driving up investment and property prices.
Apart from that, with the exception of Indonesia and Peru, which very little is known about, of all the markets listed above lifestyle buyers are at least equally prevalent to investors, so it does seem that lifestyle buyers are driving the recovery. Having said that, most lifestyle buyers will always be considering the investment potential of any property purchase - and will also tend to rent out the property if only to keep it aired, maintained and secure in their absence.
This is good news for opportunistic investors; because one consideration when making an overseas property investment is how many of the surrounding properties are investment properties, and therefore rental competition. If most of the buyers around you are using their properties long-term, or renting mainly to family and friends, then it is less competition for your rental property. Turkey is a favourite with lifestyle buyers, but demand for long-term rental apartments in Istanbul is phenomenal, and the same goes for the likes of Natal and Sao Paulo in Brazil.
As always, do your research in abundance, but get out there and start looking because the tide is coming back in on overseas property investment.
- Thursday 20 December 2012