Residential Property Offering Best Investment Potential in Europe Says PWC Report

According to the PriceWaterhouseCoopers Emerging Trends in Real Estate report, residential property offers the best investment opportunities of all property classes.

"Institutional and private investors are keen to put money into the sector as strong demand and rising rents have pushed residential expectations for 2010 above all other property types, according to the new research conducted with the Urban Land Institute (ULI)," said the Overseas Property Professional report.

The reasons given by those interviewed for the report were varied and conflicting at times, for instance, on interviewee said:

“We buy residential to rejuvenate our residential portfolio – not because the yield expectation is spectacular, but at the moment a residential investment at 4.5% is more attractive than a government bond."

While, ULI president for EMEAI, Bill Kistler, told Overseas Property Professional that investors are incredibly bullish for the sector. “The affordability gap is closing in many places, governments are encouraging investment and land prices are cheaper,” he said.

Another said: “Regional investors are buying to consolidate their positions in local markets and they are prepared to pay reasonable prices.”

And another predicted a 40% increase in residential apartment rental yields, and said: "Due to inflation fears, there is a big demand for [for-sale] apartments in some markets that were not affected by a housing bubble [e.g. Germany]."

Meanwhile John Forbes, EMEA real estate leader for PWC said that the strength of residential prospects was relatively high due to a lack of enthusiasm for other sectors, at a press conference on Friday 29 January.

See what I mean, conflicting, but conflicting or not this is some very positive news for residential property markets across Europe — PriceWaterHouseCoopers have a lot of respect for getting it right when it comes to property.

The report pinpointed German cities as offering the best residential opportunities due to the strong rentals market that comes from the low percentage of homeowners in the country — Berlin and Munich were named as the two best. London, Paris, Hamburg and Istanbul also got a mention as being next best after Berlin and Munich.

RICS Confirms First Increase in Overseas Property Investment in Q4 2009

Today the Royal Institute of Chartered Surveyors went some way to confirming what many analysts have been saying for sometime now; that the number of investors currently active in overseas property markets has started to increase.

Demand for overseas property began to increase in April last year, but for several months it was simply an increase in activity from lifestyle buyers, who had kept many overseas markets afloat during the worst of the crunch.

Lifestyle buyers were so prevalent, because they are predominantly the wealthy, who haven’t been directly affected by the downturn, but who stopped buying overseas property for panic and fear that it could all get so bad that they would be.

Thus, the first signs of economic recovery were enough to tell them it wasn’t going to get as bad as feared and they started looking at sun-soaked overseas properties to cheer themselves up from the doom and gloom — this is why the most popular markets were the Caribbean and the Algarve.

This all started to change, with overseas property agents reporting an increase in investors from around October. It could also be seen in overseas property portal’s top 10’s starting to show emerging markets, and hot investment markets in the top 10, as oppose to showing 10 lifestyle driven destinations month-in-month-out.

Now RICS has confirmed this trend: The number of investment bidders per property rose for the first time across most Western European markets in the fourth quarter of 2009, with the biggest pick up seen in the Netherlands and France, the report said.

Miami Condos Flying off the Shelves

Well, apparently Orlando isn’t the only place in Florida to see a massive rise in sales of condos in the second half of last year.

Miami developers have reported a 133% increase in sales of condos since they knocked 30% off prices, up from 711 sold in the first six months of the year, to 1655 in the latter part of the year, according to research from Florida-based consultancy Condo Vultures.

“Buyers, primarily with cash, purchased an average of 6.5 new condo units per day from developers in 2009,” said Peter Zalewski, principal at Condo Vultures. “The buying activity really picked up velocity in the second half of the year once retail condo prices were slashed by lenders from $300 per square foot down to $200 per square foot, which is in many cases below the replacement cost of the finished product.

The new prices triggered a buying frenzy by foreign nationals with strong currencies and private equity groups that finally began to purchase, completing a dozen condo bulk deals in the Brickell Avenue Area, Downtown Miami, and the Biscayne Boulevard Corridor in 2009.”

You’ll hear a lot about 100% plus rises in sales in the coming months, as historic lows begin lifting off the floor. But you should only put any real weight behind them if they give starting and growing numbers like this report. 1655 Condos may not be massive for a market like Miami, but it still means that more condos were sold in Miami in the latter part of the year, than properties sold to foreigners in Cyprus in almost the entire year.

Preuksa Expansion into Maldives Property a Bright Signal for 2010

Well, if there was any doubt left that 2010 would be a year of revival in the overseas property market, then it was put an end to (for me anyway) by recent news.

Overseas Property Professional magazine reports: “[one of Thailand’s largest developers] Preuksa is in negotiations to launch a joint venture with the Maldives government to construct a low-rise residential project next year, COO Prasert Taedullayasatit told the Wall Street Journal.

China and Indonesia will also be targeted because of their large populations and strong local demand, he said, while existing projects in India and Vietnam are predicted to generate around THB1 billion this year. Revenue from overseas development is expected to account for 40% of the company’s 2017 revenue target.”

Thai developers were absolutely battered by the downturn, and those that survived moved away from the foreign markets and focussed on low-budget residential developments in Thai cities. The fact that they are looking at moving out of that cocoon in 2010 is a very good sign.

In 2007 and even the first part of 2008 Thai developers were riding high as foreigners continued to pile into the luxury sector, and the luxury resort islands of Phuket and Koh Samui saw luxury villas growing in value by 50% per year (based on 100% growth between 2005 and 2007). Their bubble burst with a bang in the second half of 2008 as foreigners simply stopped buying property abroad for investment.

Though nowhere near as many developers collapsed in Thailand as elsewhere, almost all of them suffered a great deal from the crisis, and, licking their wounds focussed on the much safer domestic market. This move by Preuksa will be based on a great deal of research and is a sign that 2010 is going to be a good year for overseas property. I mean, there is nothing to stop Preuksa simply enjoying another year of growth on Thailand’s domestic market alone.

International Economic Recovery: We’re in the Eye of the Storm

For anyone who thinks that the worst of the downturn is behind us and we can just sit back, flick the auto-pilot switch and enjoy the plain sail into the clear blue waters of economic growth, only needs to look at today’s headlines.

Unfortunately they will see that what we are in now is more like the eye of the storm; the storm of catastrophic demand, output and liquidity reduction as banking sectors around the world crashed, have been navigated with the compass of economic stimulation including money printing. Ahead lies rocky sailing with storms all around as we try to remove the economic stimulation without collapsing the house of cards we have built in the last 6 months.

Today we saw another blip in the US housing market is an 11.3% drop in new home sales in November, to a seven-month low, and following months of positive data on the housing market and the economy. This is thought to have come because the government housing stimulus was thought to be ending in November.

This has been seen several times in the past; months of positive data and then bang: the first positive data emerged from the US housing market in April, with the Case-Shiller index reporting price rises in most states. This was followed by more monthly rises, increasing sales and increasing construction. Then there was a shock fall in construction. Since then we have had more price rises, and more positive data, including a record rise in existing home sales in October, and then today’s bang.

Another example of the volatility that still exists, is in the fact that European stocks have climbed an astonishing 29% since January, but investment brokers are warning today that we should not be investing in them.

European Property Ripe for Investment and Getting Riper

Is it just me, or does anyone else think it is a bit much of a muchness to reissue a new long-term forecast just to up it by .3 of a percentage point.

That is exactly what the Aberdeen property investment group has done today. It says that the outlook on European property continues to improve, and forecast a 6.7% average five year return on European property, up from 6.3% that it forecast in its previous quarterly report.

The point of the message is that things are really improving in terms of the outlook for European property, which is of course great news. I just can’t help thinking they could say it in a better way. I mean, a .3% increase in the average return over five years is not much of an improvement, and probably undersells the rate of improvement seen in European property markets, now and during that period into the future. But ah, who am I to argue?

Whatever your thoughts on the necessity of such minor changes to long-term forecasts, this is the latest in  long line of improving sentiment in all sectors of European property, but particularly the commercial sector, and within that particularly the retail sector. Next year is forecast to be an incredibly strong year for the German retail sector, with 48% of retail chains planning to enter a new market next year, saying that Germany is their next target.

“The timing for investors to increase exposure to European property is actually very good now,” commented Aberdeen’s Western Europe Research Director Gert-Jan Kapiteyn. “However, investors will have to rely less on leverage as a driver of performance .. as banks will be less willing and able to provide cheap finance. Less gearing .. will also help institutional investors, of whom many are looking for the liability hedging qualities of property investing: high income returns, return stability, inflation protection and portfolio diversification.”

Spanish House Prices Falling Slower but Worst not Over Yet

The decline in Spanish house prices is slowing according to two major indices both released in the last few days, and both covering up to the end of Q3.

According to TINSA, — the most respected index of Spanish property prices, — the year-on-year decline slowed to 7.4% in October. This is a similar rate of decline as seen at the end of last year, slower than the 9-10% year on year declines registered every month since January.

According to Knight Frank Spanish house prices were down 8% year on year in the 3rd quarter. This is again slower than the 8.3% decline registered by the index in Q2. However, the Knight Frank index paints a more positive picture in its quarterly analysis, which shows the decline slowing from 3% in Q1 this year, to 1.5% in Q2 and to just 0.90% in Q3. This could perhaps indicate that the bottom is approaching.

Very few people will be breaking out the champagne any time soon though. For a start this must be offset by the fact that, despite the positive data, Spain still moved down from being the 23rd worst performing country out of the 32 analysed by Knight Frank in Q2, to being 31st worst out of 33 in Q3.

Another reason to dampen the flames is the fact that after a correction has lasted more than a year, then the decline will obviously start to slow anyway. The slowing is magnified because the contraction, which usually is slowing, will be measured against the contraction at the start, which tends to be larger.

Of course that is only on the annual contraction rate; when the quarterly contraction is lessening, then it is a clear and undeniable sign that the decline is really slowing. In conclusion, while the rate of decline in Spanish house prices is slowing, it is likely going to be a long bottom, with more falls before there is any growth.

Florida Property Market Still Suffering from Lack of Vendor Realism

Oh my god. I just read a story that portrays a negative aspect of foreign demand in the Florida property market.

Apparently foreigners are not going to find the land of plentiful bargains they will be expecting because sellers still have inflated expectations over asking prices. This is worrying for the UK housing market, and those that have suffered in the crash around the world.

Vendor realism is one of the biggest factors in a housing crash, and it is capable of preventing a real recovery in itself. The thesis is that the market cannot bottom until the gap between sellers and buyers expectations is fully closed. So, if after nearly three years of a severe crash, American vendors still aren’t being realistic about their asking prices then the rest of us have a lot of misery ahead yet.

The story comes from Forbes. However, the impact on foreigners from the lack of vendor realism in the Florida property market, can undoubtedly be offset by the volume of distressed and foreclosure lots on the market – these are what foreigners tend to go in search of anyway.

Florida has been one of the hardest hit for repossessions and foreclosures, and in the US that is saying something. Some see buying properties as benefiting from people’s misery but in truth, once the properties are repossessed it is better that someone benefits, because the bank is not going to give them back to the original owner if they don’t sell, are they?

So, in the great irony of 2009, foreigners will continue to flock to Orlando in search of properties being sold on the cheap, most of which having been repossessed from foreigners, who bought on easy credit during the boom.

Now is the Time to Buy Overseas Property

Around the world the economic situation is improving, and the decline in property prices is slowing. In some places the decline is clearly over and the recovery underway.

Portugal stands out as a shining example of this. It was sheltered from the banking crisis, and prices were not as inflated by speculation as in many places, so the only decline in Portugal property prices was from a fall in demand. Demand has been increasing again since April. Knight Frank recently reported that prices were up by over 1% year on year in Q2, and Global Property Guide have just reported a 1.48% rise year on year and after inflation in the third quarter.

Because Portugal’s problem with speculation is less severe, because it escaped the banking collapse, and because the two quarterly price increases have been steady, then there is every reason to believe that the Portugal property market has bottomed.

Many people are already realising that now is the time to come out of the shadows if they want to get a bargain. There are reports of increased demand in many established markets, including Portugal, the Caribbean, and around the world.

The fact that developers and agents are currently sweetening property deals with things like cash-back and free furniture packs is fuelling this demand, but as confidence in the recovery increases these offers will start to dry up. At the same time, prices will start to solidify at their current level, at which point growth will resume shortly after.

What we will also see will be the numbers of below market value and distressed sale opportunities starting to reduce in numbers. In short: the window of opportunity on grabbing an overseas property bargain is starting to close.

Many people are waiting for the pound to strengthen; failing to realise that if they wait to long property will be sufficiently more expensive to mean they have gained nothing, and may even lose out on the deal. In short: the time to start your overseas property search is now.

Top 5 Destinations for Overseas Property Investment

I know that HomeOverseas has just published its top 10 property investment destinations for 2010, so I thought I would get in on the bandwagon, with my top 5 best property investment destinations for 2010. However, mine isn’t just for 2010, mine is the best destinations to invest in property because they will see the most growth between now and 2015.

1: Brazil

I know that this is number 1 on HomesOverseas’ chart as well, but you just can’t get away from the potential for growth in the Brazilian property market and economy in the coming years. Brazil’s rapidly growing services sector, as well as its massive industrial and agricultural sectors were already driving to make Brazil one of the world’s largest economies, and property prices were set to be driven up also, and then it went and discovered oil.

We all know the wealth generation oil brings to a country, and this only sured up Brazil’s growth potential; it is now almost a certainty that Brazil will become one of the world’s largest economic players. During the next few years, growth in the economy will drive  Brazil property prices upwards, at an average of at least 15-20% per year between now and 2020.

Then of course Brazil was awarded the honour of hosting the 2014 World Cup, and the Olympics in 2016. Both those events will boost economic growth, rental yields and probably property prices. All in all Brazil property packs a powerful investment punch.

2: Turkey

Turkey’s property market, from an overseas investment perspective is fuelled because of its massively growing tourism industry. This has continued to grow throughout the downturn, which will give it a clear advantage to see accelerated growth in the world’s recovery over the coming years.

The European Union has forecast that Turkey will be the fastest growing economy in Europe for 2010, with a growth of 2.8%. Turkey has also been forecast to have one of the fastest growing construction industries in the coming decade according to major new research by Global Construction Perspectives and Oxford Economics. The report, titled: Global construction 2020 looked at infrastructure development, population growth and GDP forecasts to form its forecasts.

Thus, Turkey property also has a very powerful argument for strong growth in the coming years, making now and 2010 — while the Lira is weak and interest rates low — the time to invest in Turkish property.

3: US

American property has been hard-hit by the downturn, with property prices having fallen between 10% and 20% depending on what state you look at. On top of that there are millions of repossessed properties, and more coming on every week. This presents an excellent investment opportunity, for foreigners to buy below market value property in the likes of Florida, and make some good yields from their rental, and cash-in when they regain their value once America has fully recovered.

4: Spain

Carefully chosen property in Spain, in areas that are not overdeveloped, will see some solid growth during the global recovery in the next few years. Spain remains the most popular destination for British tourists, and one of the top 3 most popular places to buy property.

Currently everyone wants a bargain, but once their is enough confidence in the recovery, for developers and vendors to solidify on prices, so solid growth will start to take place. Again though, the best opportunities are on repossessed or heavily discounted properties, again in areas not overdeveloped, as these should regain their full value once the world has recovered, and will do a yield of at least 6% (if carefully chosen) in the meantime.

5: UK

Property values in the UK have been among the hardest hit in the world, and the fact that the pound dropped against many currencies makes UK property massively below market value to many overseas buyers. During the last boom prime UK property grew the fastest of all properties in the world, commercial and residential, so UK property is understandably very popular with institutional and savvy private investors from all around the world right now.