Way before I ever make a recommendation for a foreign real estate buy, I know exactly what the market is doing—and how certain real estate trends are likely to play out.
Identifying and understanding market trends is key to smart real estate investment overseas. It’s the difference between buying a nice and low-priced property that will stay at the same price point for years to come…and buying a property that’s set to rise quickly in value over the coming years.
If you’re thinking of investing in real estate overseas, here are three market trends that you need to look out for…
Trend #1: A Path of Progress Play
A Path of Progress is the term I give to a real estate market (or a pocket of one) that’s set to grow in value as development comes.
That development can come in any number of ways: major infrastructure projects or improvements that are set to open up a destination that was previously hard to get to; a new airport that will bring more tourism every year; planned new amenities that will make a destination more attractive to property buyers or vacationers; government or private investment designed to kick-start growth in an area.
Once any one of those events happen, land and property prices rise. Get in at the start of a Path of Progress trend and you could be sitting pretty on strong capital appreciation when the trend plays out.
One of the best-known examples of a Path of Progress playing out is in Cancún. As far back as the 1960s, Cancún was little more than a sandy spit of land facing onto amazing Caribbean views. Back then, you could pick up a prime piece of beachfront land in Cancún for silly cheap. Almost for nothing. No one was buying.
Then the Mexican government put its weight behind growing Cancún into the major resort town it is today. Today, if you could find and buy it, land for a prime oceanfront resort community could run into tens of millions of dollars.
Now that Path of Progress is rolling farther down the coast—and destinations south of Cancún are on a similar growth trajectory. Get in now and you’ll be primed to profit when the Path of Progress finally finishes rolling through.
Trend #2: A Market in Crisis That’s Set for a Resurgence
Another trend I keep a close eye on is when markets are in crisis. Get in at the right moment of a crisis in a real estate market that’s set for a resurgence and you could do very well from your real estate buy.
The way to play the crisis trend is to wait for a prime buying moment in a depressed market and snap up real estate super cheap. At the moment when owners want or need out of their property, there can be opportunity to strike.
Markets are driven by humans—and when humans experience a crisis, often the reaction is to panic. That can create pricing anomalies…where sellers price their property at far below their true value.
I’ve seen this happen most recently in Europe, particularly in Spain. When the recession hit Europe, it hit Spain particularly hard. In the wake of the panic surrounding the situation, the market went ”no bid.’ Real estate sales all but dried up while banks and developers scrabbled to make sense of the market.
Then, Spain’s bad bank SAREB stepped in. And in typical bureaucratic manner, when they looked at a spreadsheet of the distressed properties on their books, they applied fire-sale pricing haphazardly. Because the price was set by some guy in an office rather than someone on the ground, the bank overpriced a lot of inventory…but severely underpriced some killer properties. Spain is in its last gasps of the crisis…and these deals are becoming rarer.
But I still have my eye on markets in crisis worldwide, ready for the moment to strike and make a killing on undervalued property that’s set to rise again in value.
Trend #3: New Economic Classes of Buyers
Knowing how a country’s economy is improving can tip you off about another important trend: new and emerging economic classes of buyers. This happens often in developing countries…countries that didn’t traditionally have a strong middle-class market.
Then something changes that helps to grow the middle class: the economy grows with a strong and stable government; foreign companies decide to open up headquarters there; banks start opening up lines of credit that weren’t available before.
And when a new, middle class emerges, that means new consumers—for things like cars, vacations, and designer goods…and most importantly to you, real estate.
Knowing where one of those middle-class trends is happening can put you in a position to profit—by owning the condo this new middle class wants to rent or own.
I’ve seen this play out in the northeast of Brazil. Though much of Brazil is in crisis, in the northeast of the country, industry and trade is prospering. And the middle class market has money to spend.
About the author: Ronan McMahon is a director of Pathfinder, International Living’s preferred real estate advertiser.
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