Remember: Americans Don’t Drive All World Property Markets

Saturday, Nov. 24, 2007

Read more about international real estate in International Living Postcards--Saturday Edition

The key to success in the international real estate trade is to understand who your future buyer will be when the time comes for you to sell.

Generally speaking, you’ve got two opportunities: a foreign buyer…or a local one.

In some cases, your universe of potential buyers could include both. This is to your great advantage, of course, because it means you’re not reliant on one particular economy. And in a market that attracts a variety of foreign buyers (for example, Argentina, which attracts European, American, Australian, and South American tourists and investors), you’re golden.

Right now, markets largely dependent on U.S. buyers are slowing down. U.S. buyers continue to look beyond American shores for opportunity…but not in the numbers they did a year or two ago. Increasingly, as you know, Americans are worried about equity values in their U.S. homes and investment properties. As a result, sales in Latin American markets, in particular, which have been particularly driven by U.S. buyers, are down and falling.

On the flip side, the Canadian dollar is stronger than it’s been in 29 years. Canadians are feeling pretty flush, and beginning to play a bigger role in overseas markets until now dominated by Americans.

Europeans, too, are discovering Central America in greater and greater numbers. The British investor can’t help but notice that his pounds go a long, long way in places like Panama. Likewise, anyone shopping with euro in dollar-based Latin American property markets feels like he’s hit pay dirt.

At the same time, markets not previously driven by American buyers continue strong. Eastern Europe, for example, is one region where real estate appreciation is steady and where I expect it to remain so for the next several years. I believe that Romania and Poland, in particular, are looking at a good further 10 years of strong appreciation.

The fast-growing local economies in Croatia, Romania, Poland, and Bulgaria are creating jobs and expanding households. That is to say, you’ve got a viable market of local buyers to go to when you decide you’re ready to sell. In fact, you’ve got two levels of local buyers: the growing middle and upper-middle class, who want bigger and nicer homes…and the younger generation now with good jobs, earning increased wages, and looking to move out of their parents’ homes earlier than they would have even a few years ago.

This same phenomenon has created an exploding demand for both sales and rentals in Ireland over the past decade, as 20-somethings, for the first time in this country’s history, looked to move out of their families’ homes younger and younger. Increasingly, they’ve gotten together to pool resources both to buy and to rent, three or four of them often investing together. In cities like Bucharest, which I visited earlier this week, the same thing is happening…and fueling both rental and purchase demand.

In other words, the Bucharest market, for example, is moving happily upward...U.S. market woes and concerns notwithstanding. Putting it center of my radar screen right now.

Another thing to consider when trying to determine who your future buyer will be is how much inventory is coming online in the market. In Bulgaria, for example, the (in my opinion) over-construction of the past five years along this country’s coast has resulted in a glut of cheap apartments that are being sold mostly to foreign buyers. The construction continues, with little to distinguish one apartment block from any other.

At least some of the foreign buyers who’ve invested here must have done so with a thought to reselling as the country’s property values continued upward. In other words, they bought to flip. However, there’s no local market for these apartments…and, given the choice, as they continue to be, foreign buyers much prefer new-built to resale. I predict the foreigners who’ve already bought are going to have a hard time finding a sell-on buyer…as will anyone buying today.

Lief Simon
For International Living

P.S. Publisher’s Roundtable members, look out for a full report from my Bucharest scouting trip in your International Property Alert soon.

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