Real Estate Investing

So what is in your five-year plan? Does it involve international real estate investing? If so, you may want to take a look at a recent Forbes article projecting the “up-and-coming” real estate markets around the world. The article analyzes housing conditions in capital cities and business centers of several countries, based on “economic expansion, inflation rates, strength of individual property rights and access to lending in emerging markets.”

So a second home or, say, a vacation rental purchased in one of the following locales could yield big rewards down the road.

Tel Aviv, Israel’s strongest real estate market, is on the rebound from an extended period of deflation. In 2007, things started turning around with a 2% increase in housing prices. Gross domestic product increased simultaneously just over 5%, and is expected to see a 3.8% growth this year. All things that bode well for economic development and the real estate market.

Kuala Lumpur, the capital of Malaysia, has seen economic growth rivaling that of nearby Southeastern Asian countries but some of the area’s lowest inflation and consumer prices, according to Forbes. The housing demand in Kuala Lumpur is so great that builders are running to keep up and prices are as much as 70% higher than initial asking price in some cases.

Santiago, Chile and Aman, Jordan have seen economic inflation and development grow proportionately. This means, as Forbes put it, “economic expansion represents a greater value in the real estate market because it speaks to what people can afford in the loan market.”

Forbes’ article took an extensive look at the overall economic health of these developing countries, because that is extremely important in determining the likely returns on real estate investments. For instance, the article points out that Latvia and Estonia excited investors in 2006 when home prices grew 66% and 24%. But considering the economic instability of those countries, it is little surprise that prices depreciated 7% and 14% in 2007, taking the wind out of investors’ sails. No one can predict world events, which is practically what you’d have to do to feel comfortable investing in smaller international markets. It is by no means a stable investment, but could be an interesting and possibly a profitable one if you have some serious cash to gamble.

We’ve discussed how the international real estate scene is faring. In many places, much better than the United States, to be sure! But where is the hottest hot spot in the real estate world? Not Mexico! Not Canada! Not even Iraq!

Vietnam has bragging rights - it is the hottest real estate market in the world, so says Orange County, Calif. realtor Michael Caruso. From individual locals to international developers, everyone is jumping on board. Condos and even entire cities are starting to dot the Vietnamese landscape, as many locals consider real estate one of the most stable investment options.

The developing economic picture in Vietnam is very long-term, and doesn’t seem to be going downhill anytime soon. It may be in large part because it has a lot to improve on, being primarily a low-cost manufacturing mecca akin to the historical roles of Mexico and Japan.

“Vietnam’s economy has grown on average 7.5% a year since year 2,000 and last year alone grew 8.5%,” Caruso writes. “Vietnam’s potential is being reflected in their office rents. Ho Chi Mihn City (formerly known as Saigon) has office rents at $49 per square foot, up 29% from a year ago. Manhattan (NYC), by he way is around $53 - $55 per square foot to give you a point of comparison.”

According to Caruso, 47 condominium projects were started over the last two years. Additionally, about 49 new office complexes are expected in the next three years. Of course, Vietnamese home prices are escalating in response to the incredible commercial real estate boom. NPR interviewed one young lady who paid the equivalent of $92,000 for her two-bedroom, one-bath apartment in a good neighborhood. The value of the property has grown triplefold over the last three years. Pretty impressive, to say the least.

So we’ve discussed the flourishing real estate markets of Mexico and Canada. In other international real estate news, one story may come as a bit of a surprise to many — the Baghdad real estate market is heating up. In fact, many Iraqis are trying to find homes, but are unsuccessful because the demand so far outweighs the supply. Amidst the rubble of a war-torn city, it seems a new type of war is emerging — a bidding war. According to the Los Angeles Times:

“Lured by news of decreased violence, thousands of displaced Iraqis returning to Baghdad’s safer neighborhoods are fueling a bit of a real estate frenzy. Last year, home prices plummeted and rents dropped as Iraqis left town in search of more stability. But now, some say it’s almost impossible to find a place to live with sales prices doubling in certain neighborhoods and the most affordable homes being snatched up as soon as they’re placed on the market.”

In Baghdad, homes are more expensive than in America, but the average middle-class income is considerably lower. The article cites a 750-square-foot home in a lower-middle class neighborhood as going for $150,000, whereas a “typical middle-class income” is listed as $400 per month. These numbers don’t quite seem to add up, and makes one wonder whether Iraqis will soon be dealing with something like the American foreclosure epidemic.

The Iraqi culture is inclined to save up money for purchases. However, this is not as feasible an option nowadays, the article points out. Many Iraqis undersold in the recent past to quickly escape the escalating terrorist attacks. They scored quick cash for their escape and are now returning with all their money gone.

Take, for example, the plight of former military officer Alla Mussa, 38, who recently returned from Egypt with his wife to find a home in their native country. According to the L.A. Times:

“To buy a home, he sold his land in a middle-class neighborhood for $41,000, hoping he could put the money toward a home. He has saved an extra $17,000, but even that’s not enough. ‘Maybe if I sell my car, I can get an extra $5,000,’ he said. ‘With my wife, I am roaming, searching for my house, but the supply is low. I have very few choices.’”

Some of the home qualities Iraqis are seeking parallel the concerns of American home seekers, like a safe neighborhood. In fact, to maintain affordability, many Iraqis are trading square footage in exchange for neighborhood safety. Other desirable housing qualities, like bullet-proof glass, are quite different from what most Americans would value. At any rate, while there are still certain neighborhoods of Baghdad that are not safe at all, the bigger picture of a healthier real estate market may be a good sign that the country is getting on its feet.