Risky Business

Date: 06/29/2007

International Living Postcards--Saturday Edition

Saturday, June 30, 2007

Every time I mention Nicaragua, a certain reader writes to tell me (as I'm sure he will today) that it is too risky to consider investing in that country. I find it highly amusing that he has such strong opinions about a country he has never visited. But it's not just Nicaragua; our friend also has a problem with Croatia. He likes to frequently remind me that both countries had civil wars 10 to 20 years ago.

But as they say in the ads, "past performance isn't any indication of future results." That's true in the stock market and it's true in the property market. In fact, look at the U.S. real estate market today. Investors are fleeing, home owners are worried, and foreclosures are up. Frankly, that is the kind of market that you should be seeking for real estate investment. The best opportunities occur in markets with a bit of turmoil.

Nicaragua has that turmoil right now thanks to Daniel Ortega and his Sandinista background. Is Nicaragua risky? Yes, but only you can decide if it is too risky for you.

Croatia isn't a market in turmoil, but as new developments finally come online after more than three years of waiting for government planning rules (see "Three-year Ban on Coastal Development Now Lifted"), the market will seek out the right price for new construction on the coast. More than likely, you'll be able to find developers who offer excellent prices as they test this new market.

Thailand has had turmoil in the past year since Prime Minister Thaksin was ousted from office by a military coup. Since his removal, the new government's missteps have included changes to foreign currency exchange controls. The uncertainty under the military-imposed prime minister has caused concern among investors (real estate and otherwise). However, Thailand is one of the freest economies in Asia. It is a center for manufacturing and exports, a tourist mecca, and a growing retirement destination in Asia due to its low cost of living relative to the financial centers of Hong Kong and Singapore. In the long run, Thailand makes sense. Is Thailand risk-free? Certainly not. There are many factors to consider when looking to buy or invest in real estate in Thailand…including the ownership restrictions on foreigners.

The Philippines is another location considered to be in turmoil. Yet, there are locations there where foreign investment in real estate is booming. One of them is Boracay where resorts are opening up using an apart-hotel system where the individual units are owned by individual investors. Like many countries in Asia, the Philippines restricts foreign ownership of real estate. But foreigners can own condos free-hold. Again, there are specific risks to the Philippines that an investor needs to consider.

The search for the right opportunity can be long, and proper due diligence needs to be completed. Consider, for example, Brazil--a growing tourism market as well as a growing local housing demand. Or Cambodia, with its seven-year-long local housing boom. A colleague in the Cambodian building industry believes there is at least another seven years of local housing demand. The opportunity is there but you need a local partner with which to work. Risky, yes. But for the right person, an incredible opportunity.

Find a country in turmoil (or perceived to be in turmoil) and you can find opportunity. "Buy what you see" is a mantra you've read here many times. You should pay a price that values the current situation--that includes risk as well as amenities. It is the investor with the vision for what could be (and who gets it right) who will make above average returns.

Lief Simon
For International Living

P.S. Experts on Thailand, Croatia, the Philippines, Nicaragua, Brazil, and other countries will be speaking at my real estate conference in Monte Carlo this October. This event is designed for sophisticated investors looking for hidden opportunities. If you think you qualify, I look forward to meeting you in Monaco. Full details here.