Market is not dead, just careful
To buy or not to buy: that is the question. In the space of a decade fortunes have been made, and sometimes lost, through property investment. Everyone has an opinion on whether real estate has had its day as a wealth creation vehicle, or whether bargains still exist, and if so, where.
It's certainly true that buying a home overseas has never been easier. A click of the mouse reveals myriad 'opportunities' in countries near and far. Banks are more willing to lend again, and some of the proffered returns do sound enticing.
But is it a good time to commit one's hard-earned to markets no-one seems willing to confidently predict or, as the property evangelists claim, does shaky confidence signal a buyer's market?
According to a new report by Jones Lang Lasalle, real estate market fundamentals overall remain 'relatively encouraging'. It found that while the world's major real estate markets have been unsettled by economic uncertainties in Europe and the United States, investment volumes, tenant absorption rates, prime rents and capital values have held up remarkably well.
'Most key markets are in better shape than they have been for several years and are making steady progress through this period of heightened economic volatility,' the researchers concluded.
JLL's report found that most emerging markets have continued to show resilience, with robust absorption levels and rental growth across all commercial sectors. It cited Jakarta, Beijing, Moscow and Sao Paulo as among the world's most dynamic real estate markets, contrasting with North America, Europe and Australia, where expectations have been lowered over the near term. The biggest downside risks are in Europe, according to JLL, particularly those markets in the 'eye of the debt storm', such as Madrid, Milan and Dublin, where leasing markets remain weak.
Yet according to Peter Mindenhall, researcher at IPINGlobal.com, people are still buying.
'The overseas property-buying market is far from dead - just more conservative than it was,' Spain-based Mindenhall said. 'Funding for overseas property investment is lower than it was, primarily due to the reduction in equity release by the majority of major economies around the world and the tightening of lending to foreigners. Subsequently, the deposit capital is not as readily available as it was and neither is lending in the countries where people are buying.'
He said that in any investment sector there will always be the bulls and bears and the property market is no different. 'The nay-sayers invariably have no vested interest in the sector, whilst the promoters of 'hot-buys' are usually promoting something.'
The key to successful and safer investing in property is in finding the right property or vehicle and ensuring it is capable of meeting your expectations, he added. 'Finding the right investment is more difficult than it was, largely due to more restricted lending by the banks at almost every level. One thing that is relevant across the board is avoiding investment that requires borrowing large amounts of capital for it to work - interest rates are potentially very volatile at the moment and if rate changes are not factored in they can make an attractive investment very costly.'
IPINGlobal.com does not promote specific projects, but applies a structured opportunity called the Secure Exit Strategy in the form of a joint venture, coupled with contractual obligations binding the developers, and insurance policies to protect investors.
To date the advisory company has used this format only in Britain, perceiving it to be a region that offers the best protection for clients as well as profitability for investors.
However, with individual property purchases, it recommends the US - specifically property that qualifies for the Section 8 programme (the American equivalent of social housing).
'The advantages are that the property must meet certain standards in order to qualify, and rental payments are collected on behalf of the owners. The US has a large number of foreclosures that fit into the system that can be bought cheaply, making the investment very affordable whilst providing consistent returns for the overseas investor without the need to be hands-on,' Mindenhall said.
The JLL report said US residential property was a global bright spot - specifically the apartment market, where demand is underpinned by historically low supply. Josh Gelormini, vice-president, research at Jones Lang LaSalle in the US, said conditions favour landlords, and therefore property investors.
'Very much so,' he said. 'The strongest fundamentals have been, and continue to be, in the rental apartment sector. Landlords have market leverage, and this is increasing as there will not even begin to be any semblance of a pivot toward any relief for tenants in the form of supply increasing in meaningful amounts until the latter half of 2012.'
Unless there was 'demand destruction' in any form - renewed weakening in the relatively fragile job market or an unexpected rebound in house sales - JLL foresees favourable conditions continuing.
'We expect the economy and employment are more likely to continue to muddle through for an extended period with soft growth, as opposed to entering a period of outright stagnation or even a double-dip recession,' the company said. 'The for-sale housing market will likely continue to underperform, although a true bottom and beginning of stabilisation in home prices may finally be reached by mid-late 2012.'
On balance, Gelormini expected that the housing market's weakness would continue to benefit the rental apartment market. 'At the height of the previous decade's US housing market bubble in 2004-05, homeownership reached a record high of 69.2 per cent. The latest available data, for Q3 of 2011, shows homeownership at 66.3 per cent. It is probable that the rate has somewhat further to decline before bottoming out.'