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World Property Predictions for 2008

Emma Holifield Property Frontiers 20 December 2008

Europe North America South_&_Central America The Caribbean Asia Africa_ For_further_information

With the New Year already upon us, Property Frontiers’ Research Team has compiled this brief overview of 2008’s most interesting investment opportunities. We have also highlighted those markets which have come off the boil.

Following the American sub-prime crisis and the subsequent credit crunch, the question as to which markets are likely to perform best this year, and to what degree, carries particular weight.

Although the US market has largely gone into reverse and the UK market has slowed, many other markets remain buoyant. It is likely that the main victims will be the highly developed Western markets which have seen long periods of strong growth fuelled by cheap and easy lending. In an interesting turn of fortune, it is the emerging market economies that have come to stand as the global economy’s pillar of stability. Large currency reserves have protected these economies from the US slowdown whilst surging internal demand has seen impressive economic growth rates continue. The stable growth in emerging markets continues to be reflected in their property markets. Many parts of Asia and South America still seem cheap and are yet to experience the long property boom that the developed world has seen over the last 10 years.

Stable market conditions, growing economies, increasing urbanisation and further liquidity are all factors that should continue to drive sustainable price growth in many urban real estate markets throughout 2008. In addition, rapidly growing demand for quality hotel accommodation in emerging resort destinations, combined with an increase in the number of hotel developers using property sales to fund development will also lead to further opportunities in this market.

The developed world may finally be seeing the end to the largest property boom in history, but many emerging economies are currently at an early stage in the growth curve which means, we believe, that in 2008 we will continue to see some excellent investment opportunities.

Europe

Western Europe

Huge growth over the last few years means most markets are mature with the highest prices in key cities. Dominant markets such as the UK and Spain, are likely to be affected by the credit crunch and growth overall is expected to slow.

Eastern Europe

Better opportunities are to be found in more emerging Eastern Europe where several markets, unlike those in the West, are closer to the beginning of their development cycles.

Poland

Since Poland joined the EU in 2004, it has attracted a very large amount of foreign investment, currently $6.5bn/yr and growing. It is now rated 5th in the World FDI Confidence Index and has recently been awarded “low business risk” status from Control Risks’ report. GDP growth is around 5%, wages are fast increasing at 4.5%/yr, disposable income is also on the incline and unemployment has plummeted from 30% to 18%. With a population of 38m (only 2m in the capital city Warsaw) and most of the FDI heading in to the main cities, urbanisation is occurring rapidly. Capital is now flooding in and a very confident finance & banking system has matured. Up to 80% LTV mortgages are now available and the residential loans’ market is expected to continue to grow at a level of 20%-30% per annum until 2009. Capital Gains Tax is 0% after 5 years and prolific infrastructure improvements are being implemented. In general, then affordability is increasing, demand outstrips supply and the growth potential is enormous.

Slovakia – Kosice

Slovakia has one of the fastest growing economies in Europe and has out-performed all of its neighbouring countries over the last two years. GDP growth reached 8.3% in 2006 and a similar rate of growth is predicted for 2007. Since the introduction of a flat tax rate of 19% foreign investors and high-earning Europeans have been keen to invest in the country which offers excellent investment credentials. FDI has increased by 200% from the year 2000 alone. With interest rates cut recently to 4.25%, the demand for property in all areas of Slovakia is booming.

Kosice in particular is earmarked for a fortuitous 2008. It is Slovakia’s 2nd city, over 50% cheaper per m2 than Bratislava and with a significantly undersupplied market. As a result demand is expected to be high and the potential for strong returns high, especially as rising Slovak wealth is fuelling the demand for good quality accommodation.

Due to adopt the € in 2009, Slovakia’s investment and economic future should thrive.

North America

Although beset by the recent crunch, opportunities still exist in carefully chosen regions.

Canada

The investment market in Canada, particularly in it oil towns has recently exploded. Bolstered by an economy at the forefront of the global spectrum worth over US $1trillion areas such as Ft. McMurray have burst onto investors’ maps. Located at the epicentre of the Canadian Oil Sands in Northern Alberta - the largest single oil deposit in the world, Fort McMurray is the central hub for the Canadian oil industry. The country’s stable political climate and existence of such lucrative sands means Ft. McMurray is home to the world’s largest capital expenditure into a single project ~ $150Billion. This modern day gold rush focuses almost entirely on the small city of Fort McMurray which has doubled in population over the course of the last 10 years. Rapid expansion and the inability to build residential property at the rate required has resulted in 0% rental voids, 20%+ capital growth per annum and yields of 18-24% over the last few years. The gap between supply and demand is set to grow even further over the next 5 years resulting in even greater capital appreciation and higher yields. And as demand for oil is likely to persist well into the future, investment here is likely to be met with strong returns.

USA

America has obviously been hit hard by the recent credit crunch and its property market has slowed dramatically in certain areas. Investors however should keep an eye on this market over the next few years, especially with the advantageous exchange rate, as opportunities are expected to emerge.

South & Central America

Low property prices, increasing tourism and consistent economic growth in key markets will continue to make for profitable investment opportunities.

Argentina

Argentina is one of South America’s largest economies, rich in resources, with a well-educated workforce, bullish economic growth and tourism that has grown 10% year on year since 2003. GDP has increased by 45% since March 2002 at an average of 8.6% a year and similar growth levels are expected for 2008. It also has a property market that is severely undervalued which offers exceptional opportunities to investors. 0% capital gains tax, a currency that is pegged to the dollar, a straightforward purchase process and prices significantly lower than other world class cities plus a booming residential market makes investment in Argentina an exciting prospect. Thanks to the array of lifestyle and cultural activities available, Buenos Aires has become a coveted tourist spot and rivals the likes of Rome and Paris. Of course it has the added benefit of the desirable South American climate. City centre apartments are in high demand and are expected to generate yields in the region of 8-10%. Look out for an elite project due to launch in the New Year offering top end one and two bedroom apartments.

Keen to fuel the property sector, the government is committed to arranging finance for property purchases which would open the market up to the middle classes. If they succeed, the real estate market will be bolstered yet further. With a housing shortage, prices are rising rapidly meaning 2008 will be the prime time to invest.

Brazil – Natal and Sao Paulo

Natal

Famous for its coconut palms, breathtaking coastline and sapphire waters, the state of Rio do Grande Norte is on the brink of an emerging global tourist market. Unlike more traditional Brazilian tourist destinations, this region is closer to Europe and North America and offers a cheaper option for flights, good food, restaurants and hotels. This added to its unspoilt beaches, average annual temperature of 30 °C and development of the world’s future 4th largest airport designed to bring in 5 million travellers per year, means it now contends, and often wins against some of Brazil’s more established tourist destinations. And, whilst still developing, it offers prices almost 3 times cheaper than those in the South.

Unsurprisingly as tourist numbers grow so too does demand for luxury accommodation and at this stage, Natal is devoid of top quality, hospitality-focused high-end luxury spa and resort developments. As the infrastructure in Natal explodes, accessibility becomes simpler and simpler meaning annual tourist numbers are increasing rapidly. Excellent investment opportunities therefore exist in this niche, and will enjoy high occupancy, strong capital growth and consistently high rental yields. Natal has the benefit of a thriving property market supported by robust economic growth; Brazil welcomes high levels of FDI, is placed 7th in the Foreign Direct Investment Confidence Index, is the second largest economy in the developing world, has good inflation control and a banking sector that is growing in confidence.

Sao Paulo

A city of equal and very different appeal is Sao Paulo. By far the most cosmopolitan city in Latin America it has the strongest economy in the whole of the country and one of the strongest property markets in an emerging country. The city is elegant, chic and lively and has more millionaires per square mile than anywhere else in Brazil. Crucially, the boom of ethanol production in Brazil concentrates in the state of Sao Paulo and brings increased foreign investment to its capital. 15km from the busy Sao Paulo city centre lies Morumbi, without doubt the most prestigious neighbourhood in Sao Paulo boasting sophistication, elegance and prestige. As is one of the wealthiest areas in the city it is within easy access of airports and main highways and at the same time, it is tucked away in a beautiful area with many historic buildings and parks. In the best urban areas such as this, yields of up to 15% are being achieved. Considering the sustainable growth and stability of the Brazilian economy, prices are expected to rise considerably over the next year. Some estate agencies are even forecasting capital growth of up to 25% meaning those investing over the next 12 months should enjoy healthy returns.

Uruguay – Punta del Este and Montevideo

Punta del Este

The St. Tropez of South America, Punta del Este is the place to see and be seen in. A vibrant city in a stunning position, it offers reams of pristine beaches and an elite clientele. Anyone who’s anyone in South America frequents this coveted spot. Unsurprisingly tourism is escalating and with recent runway and terminal renovation at the city airport, visitors are due to increase by a staggering 60% this year. Growing demand for high end property is provoking increased construction and laying the foundations for a very successful investment future. Uruguay as a whole has a strong and stable economic growth currently at 7%. Inflation has dropped consistently over the last 5 years and this year the country will receive its highest levels of FDI ever – over $1.7 billion towards two paper pulp mills. Uruguay is also considered one of the safest places in the world, the 2nd least corrupt nation in South America and one where political and working conditions are among the freest on the continent. Taxes are also appealingly low, with rental income and capital gains both at 12% and inheritance and gift taxes at 0%. With the rental market strongly pro-landlord, and with relatively low transaction costs, the potential for healthy yields and price growth should be maintained by enormous tourist demand. Of further appeal is that unusually, up to 70% LTV mortgages are in place allowing relatively low cost investment.

Montevideo

Uruguay’s capital Montevideo tells another exciting investment story. This beautiful city offers incredibly low cost entry and the capacity for very high yields. To the

West, the River Plate gives fantastic views and is often referred to by locals as ‘the ocean’ due to its salty blue water. The city is also home to 10 desirable beaches, popular with investors and locals alike. Due to the very limited supply of rental units, yields can be as high as 11.4% although the rental market in Uruguay is currently very small. Owner occupancy however is at an appealing 82%. Properties in Montevideo’s old town are especially cheap and of charming French-style design. It is this district that offers probably the best potential for capital appreciation as the government is committed to its promotion. It has attractive living and dining out areas and the present very low prices are expected to rise swiftly.

The Caribbean

Recent and sustained developments in infrastructure and a diversification in the types of property available, coupled with consistently high demand from tourists, means the Caribbean has blossomed into a thriving investment market. The region’s year round season affords high rental returns and whilst there can be a low cost entry on some of the less developed islands, capital appreciation averages a healthy 10% per annum. Keep an eye on Grenada, St Kitts, Honduras and Trinidad and Tobago.

Trinidad and Tobago

Hailed by the New York Times as the "Caribbean tiger", Trinidad's economy is booming, whilst its sister island, Tobago, really is the last true Caribbean hideaway. Winner of the world travel award for the best eco-tourism destination for 3 consecutive years, Tobago has a raw natural beauty that is quite breathtaking. Keen to sustain this, the government is committed to a restricted and sustainable program to carefully control and enhance Tobago's tourism industry and have granted a budget to help develop the island in line with this objective. With a current bed shortage of 750 and occupancy averaging 85% across the island, it is clear that new hotel resorts in Tobago will be in extraordinarily high demand especially as tourism is set to increase by 15% in 2007 alone. This then presents the investor with an ideal opportunity to purchase property in a tropical paradise, safe in the knowledge that the country is economically secure with bright future prospects.

Confirmed net rental yields of 10% are offered for the first few years on leading projects as well as personal usage on an annual basis. Tobago is rare then, in that it offers the serious investor the chance to buy into a strong investment market whilst simultaneously buying in a stunning holiday destination.

Asia

Home to some of the world’s strongest economies and countries rich in natural resources, this region has significant and prolonged investment potential. Concerns about over-supply in the emirates pale next to Malaysia’s robust opportunities especially in Kuala Lumpur – a capital city currently offering some of Asia’s best investment opportunities.

Malaysia – Kuala Lumpur

Malaysia is economically robust, with GDP over 5.5% for the past 3 years and consumer confidence sustained near 10%. Unemployment is also now below 4%, and the recent abolition of Capital Gains Tax from 30% to 0% has bolstered the market attractiveness for local as well as foreign investors.

In the last 150 years Kuala Lumpur has grown from a small town to a major capital city now offering some of the most exciting property investment potential in the world. Kuala Lumpur has a robust financial sector and thriving high-tech industry which feeds the insatiable Chinese economy and attracts large numbers of young professionals to the area. Extremely high levels of urbanisation as well as the expansion of KL’s “silicon valleys” of Cyberjaya and Putrajaya means phenomenal growth has led to a shortage of high quality accommodation. Malaysia’s market-oriented economy has benefited from continuously high levels of foreign investment and an educated, young and driven population.

Malaysia has one of the best mortgage markets for non-residential foreign buyers in the world with up to 70% LTV mortgages available. What is more, capital gains was abolished earlier this year – a significant drop from 30% to 0% which has made the property market increasingly appealing for investors. Furthermore, KL itself is within 5 hours of 60% of the world’s population and is home to the world’s longest fully automated light rail transit system. With supply estimated at 44 per cent of current demand the Malaysian property market is an exciting place to be right now and should continue to be so throughout 2008.

Vietnam

Considered by many as the new Thailand, Vietnam is a country whose popularity and economy are on a sharp upward trajectory. Second only to China, Vietnam has the fastest growing economy in the area enjoying an average GDP growth rate of 7.4% per annum over the last 5 years. From now until 2011, it is expected that GDP growth will be maintained at a robust 7.9%. With a rising middle class and steady demand from tourists and expatriates, Vietnam’s rental market is heavy with promise. The extent of the country’s potential is almost solely down to its emergent status. It is a country almost untouched and totally undeveloped. As such, it is a new market offering a range of opportunities at very affordable prices. Next year should also see the likelihood of increasing mortgage accessibility to most locals and foreigners which will further bolster the market. The very infancy that is of such appeal to investors though, does also bring some teething problems. Right now, there are legal restrictions that prevent foreigners from owning their own property meaning that alternatively they have to lease it. It should also be noted that foreigners cannot own houses for domestic purposes meaning that they must rent them out. The country suffers from an element of political instability where government transparency is still low and as a result, risk is relatively high. Whilst all of these restrictions are expected to be relaxed and overcome in the future, it is perhaps suffice to say at this point that Vietnam is a market ripe with opportunity which, providing you are willing to take a risk, should provide excellent returns.

Kazakhstan – Aqtau

Of the world’s emerging markets, Kazakhstan is perhaps the one with the most potential. With major deposits of oil, petroleum, natural gas, coal, iron ore, tin and gold, the country’s export trade is a strong one. Thanks to its wealth of natural resources the country attracts high levels of FDI – over $40billion since 1993. With GDP growth of 10.6% in 2006, Kazakhstan’s economy is considered by some to be the fastest growing in the world. At the outset of its growth and reform cycle, Kazakhstan should mature into a prime investment destination providing that political stability is preserved.

The city of Aqtau in particular is considerably cheaper than other cities in the country and therefore should be noted by investors. It is a relatively new city – built in 1961 to service the burgeoning oil industry and as such should experience high demand and growth.

Africa

Continuing the oil theme Africa also offers some interesting investment opportunities based on high mineral deposits.

Angola

Considered the African economic powerhouse of tomorrow, Angola is a country with an exciting future. Sub-Saharan Africa is currently experiencing some of the highest economic growth in the world and with 25% growth expected in 2008, Angola is the continent’s leading light. Thanks to robust supplies of oil, diamonds and gas, Angola’s economy is stalwart. With plummeting inflation, and a government committed to attracting high levels of FDI with the initiation of the National Private Investment Agency to provide investors with maximum advantages, Angola should appeal to investors the world over. And as far as western diplomats are concerned, Angola ‘has…the highest rental market in the world’. Save a lengthy land titling and property registration period, Angola has several of the credentials to be a key investment market of the future.

For further information on any of the countries featured in this round up please contact:please contact Property Frontiers on 01865 202700, email info@propertyfrontiers.com or visit our website www.propertyfrontiers.com

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