How to successfully invest in foreign real estate in conditions of economic instability?

Real estate purchase as a way of investing

Buying real estate with the aim of reselling it later for a profit from the price difference may seem like a straightforward task at first glance. However, this simplicity can be deceptive. The real estate market is often subject to price fluctuations for many reasons: this can be due to overall economic development, improvements in infrastructure in certain areas, or the successful completion of development projects.

It's important to understand that real estate prices can both rise and fall, and this dynamic depends on a variety of factors.

Advantages of foreignreal estate

What are the attractive features of international real estate for investors looking to grow their wealth? What are the risks and specific nuances that need to be considered in this area? Economic crises take various forms, and the current concerns among investors are largely related to declines in business activity, especially following the COVID-19 pandemic.

• The most affected industries include:
• tourism sector,
• beauty industry,
• entertainment industry,
• gastronomy,
• some segments of trade.

Despite all this, one could initially expect a decline in the housing market, similar to what was observed during the financial crisis of 2007-2010. However, two years after the onset of the pandemic, it is important to highlight the key differences between the economic downturn of 2020 and previous scenarios.

The growth of the real estate market in the early 2000s

In the early 2000s, the residential real estate markets in Europe and the USA experienced unprecedented growth, peaking in 2005-2006. Low mortgage interest rates, minimal down payment requirements, and favorable conditions for borrowers created a conducive environment for home purchases, including foreign investments.

The British have been actively purchasing resort apartments in the Mediterranean, hoping that in the future this will become their second home. Many mortgage loans were secured against their primary residences in the UK, and the purchased apartments were rented out, which allowed them to partially or fully cover their mortgage payments.

The mortgage crisis of 2007

The mortgage crisis of 2007 in the United States had a significant impact on real estate prices worldwide, especially in countries that had close financial ties to the American economy. It is not surprising that the United Kingdom was among the hardest hit.

An important aspect here has been the variable interest rates on loans, which are dependent on changes in the Bank of England's base refinancing rate. Thus, while the real estate market remains a dynamic and diverse area for investment, investors should exercise caution and vigilance in the face of a constantly changing economic situation.

The increase in interest rates by the BBR has had a serious impact on the credit market, forcing many borrowers to part with their properties. This situation has led to a sharp decline in the residential real estate sector. Similar trends are observed in other countries such as Ireland, Norway, Austria, Finland, and Spain, where significant rates of decline in housing prices have also been noted. Liquidity in the residential real estate market has rapidly decreased.

Improvement in the real estate market

Nevertheless, as of today, the reasons for the economic crisis have fundamentally changed, and the real estate market is showing positive indicators. With the end of strict quarantine measures, there has been a significant increase in the number of transactions in European countries, which has led to a rise in housing prices. According to data from Global Property Guide, in the third quarter of 2021, out of 60 countries studied, 54 saw an increase in housing prices compared to the previous year, while only six countries experienced a decline.

The rise in housing prices in Europe

There is an increased demand for housing across the continent. Countries with a sharp rise in prices stand out in particular:

• Montenegro: 32.4%
• Sweden: 17.97%
• Australia: 16.08%
• Netherlands: 15.33%

The United Arab Emirates is also showing positive dynamics in the real estate market, with a price increase of 7.71%. In Dubai, in particular, the cost of residential properties is rapidly rising, reaching 20-25% – the highest level since 2014.

Asian countries and their real estate market

Asian countries are showing less significant growth rates in the housing market: for example, in Thailand, the increase was only 0.44%. At the same time, experts note a significant potential for price growth in Thai real estate. Market activity has noticeably increased after the decline caused by the COVID-19 pandemic in 2020.

Prospects and risks

According to reports from Deloitte analysts, positive trends are likely to continue over the next two years, which will contribute to the ongoing rise in housing prices. In the context of overall economic uncertainty, real estate remains one of the most reliable and attractive investment options.

Real estate investment evaluation

But how can one assess the feasibility of investing in real estate? Besides global economic crises, there are also risks of local downturns that can affect specific countries or regions. Political and economic changes force investors to exercise caution when making purchasing decisions.

Recommendations for beginner investors

Experts recommend that beginner investors consider several key criteria when evaluating real estate properties. First and foremost, attention should be paid to the ratio of rental yield to property value (the R/P ratio). The higher this ratio, the greater the potential for price growth in housing, according to basic principles. A high rental yield can partially offset mortgage expenses, which in turn reduces the financial burden on the investor.

Therefore, it is important to carefully approach the selection of properties, taking into account current trends and risks in the real estate market. By evaluating various offers, investors will be able to make a more informed choice and minimize the risks associated with investing in housing in today's market.

Introduction

In the current situation, purchasing a home through bank financing is becoming an increasingly advantageous alternative to renting a similar property. This scenario creates excellent conditions for increasing interest in the process of buying real estate, which, in turn, leads to a rise in its prices.

Expected return

The expected rental yield ranges from3%to11%from the current market value of housing. If this indicator falls below3%it becomes impractical to invest in such assets. On the contrary, the return at the level of11%and indicates a significant potential for increasing the value of this asset.

Exceptions to the rule

Nevertheless, there are exceptions to the general rule on the international stage. In countries with underdeveloped mortgage systems, this trend may not hold true.

The rules apply differently to registered and regulated markets. For example, in some European countries, housing prices can increase even with low rental yield rates, which range from4%to7%per year.

Rental market

Deloitte's research showed that in 2020, rental housing prices increased within10-28%However, strict regulatory standards along with high tax rates can significantly reduce real returns.

Infrastructure and price growth

There are also regions where the rise in real estate prices is explained not only by economic factors but also by improvements in infrastructure. This applies to both newly developed areas and regions with low current housing income but with significant development prospects, which leads to an increase in prices per square meter.

Cost of construction

Another important component of market assessment is the cost of housing construction. If apartment prices significantly exceed the costs of their construction, it may signal a potential decline in prices in the future.

Low construction costs attract developers to create new projects, and an increase in supply often leads to a decrease in prices. However, in regions where construction is regulated at the legislative level, the impact of low costs on the final price of housing may be less noticeable.

Prices in Europe

In Europe, there are many rules and regulations, but often this does not lead to a decrease in housing prices, which generally significantly exceed the costs of construction.

Availability of real estate

Another important element that affects the real value of real estate is its accessibility. High prices are not always a sign of low growth potential, just as low rates do not indicate a stable increase in prices.

It all depends on the income levels and overall quality of life in the countries or regions we are interested in. First and foremost, it is important to pay attention to the income of the average citizen in the cities or areas where there is activity in the real estate market.

Conclusion

This will allow for a more accurate assessment of the growth and development potential of this market, as well as making more informed conclusions about the feasibility of investing in housing. Monitoring the dynamics of housing prices and rental rates can also help in understanding market trends and identifying favorable conditions for investments.

The relevance of the issue of real estate prices

The question of real estate prices in major cities is becoming increasingly relevant, especially against the backdrop of rising costs. A striking example is Brussels. Despite all its advantages, its potential as an investment object is underestimated by many investors. It is important to note that despite the high income levels in Belgium, housing prices are comparable to more affordable options in Eastern European countries.

Real estate market analysis

When studying the real estate market, one of the key indicators is the gross domestic product (GDP) per capita. Comparing housing prices with this figure allows for a better understanding of the actual value of properties.

• A high GDP in relation to prices usually indicates that the market is undervalued.
• This opens up opportunities for price increases in the future.

Minimizing risks in investments

To minimize risks and assess the attractiveness of real estate investments, it is essential to analyze the specified parameters together and also consider the risks associated with currency exchange rate fluctuations.

Liquidity of real estate

When discussing the potential for income from natural market growth, the liquidity of real estate becomes an important aspect. The concept of liquidity implies the ability to quickly sell an asset. Cities such as:

• London
• Berlin
• Vienna
• Paris
• Frankfurt
• Moscow
• Milan
• Barcelona
• Rome

They have high liquidity, which makes them particularly attractive for investments.

The rise in housing prices in Amsterdam

Moreover, experts note the rapid increase in housing prices in Amsterdam. Recently, the average cost of apartments in the city center has risen from 350,000 to 500,000 euros. Due to a shortage of listings, sellers have started holding auctions, which can lead to price increases of 100,000 euros or more. However, the situation is calmer on the outskirts of Amsterdam, where apartments can be purchased for 350,000 euros.

Rotterdam, the second most important city in the Netherlands, is showing a smaller but more stable price growth. Forecasts suggest that this rise may continue for another 1-2 years, providing an opportunity for investors in the final stage.

Investing in European real estate

Acquiring real estate in some European countries can be a profitable investment.

Popular real estate investments

Currently, specialists in European real estate claim that investments in the restoration, renovation, or major repairs of properties are becoming increasingly popular among investors. The essence of this approach lies in finding buildings that require repairs and are located in strategically advantageous or developing areas, followed by improving their condition and selling them for a significant profit.

For example, if an apartment in Vienna was purchased for 160,000 euros and then sold after renovation for 360,000 euros, this illustrates a successful application of this strategy. Experienced investors constantly keep an eye on such opportunities, and properties like these typically remain on the market for no more than two weeks. Therefore, it is important to actively monitor the market and be ready for a quick purchase when an enticing offer is found.

Strategies for capital repairs

Some real estate properties are specifically chosen for extensive renovation. In Berlin, for example, a ground-floor apartment was transformed into five separate living units, each equipped with its own bathroom. The investment in this project amounted to about 1 million euros, of which 500,000 euros went towards purchasing the apartment, and the remaining amount was spent on reconstruction and registration in the land registry. Selling these individual units can yield a profit of up to 50%.

Investments in new buildings

Nevertheless, despite the activity in the reconstruction sector, investments in new construction are currently not attracting much interest from investors, according to experts. Expecting a quick return from construction and developers' projects is not relevant, as the price increase during construction often turns out to be very minimal, and in some cases, there is none at all. In reality, the increase in the cost per square meter in new buildings is largely driven by general market trends.

Eastern markets and their attractiveness

The most favorable investment conditions are observed in the eastern markets. One such country is the United Arab Emirates, which has solid growth potential, a high rate of economic development, and favorable conditions for generating rental income.8%Despite the negative consequences of the pandemic, this country hosted the large-scale Expo 2020, attracting around 6 million tourists annually, and it has free operating conditions for restaurants and hotels without lockdowns and restrictions.

Dubai as a development hub

Particular attention should be paid to the emirate of Dubai, where the largest number of development projects are being implemented. To achieve maximum profit, the best choice would be to invest in the early stages of construction, provided that reliable construction companies are selected. Major developers such as Emaar, Dubai Properties, and Nakheel are actively operating in this market. All developers and their projects can be verified through the official website of the Dubai Land Department.

Installment options

In addition, various development projects in Dubai offer the option to purchase real estate with installment payments. Payments can be made throughout the entire construction period, and in some cases, even after its completion, allowing for payments to be stretched over several years after the property is handed over. This makes real estate investments even more accessible and attractive to a wide range of investors looking to secure stable income in the future.

Initial payment

The initial capital required to purchase real estate depends on a number of factors and typically amounts to about 20% of the total sum needed for housing. Over time, with the construction of new residential complexes, there has been an increase in the price per square meter, as well as improvements in infrastructure, which significantly enhance the prestige of the area.

The real estate market in Dubai

In 2021, the real estate market in Dubai showed significant growth, especially in the segment of properties located near private beaches. Such properties include:

• The Palm Jumeirah
• Bluewaters
• Emaar Beachfront

Demand for villas and townhouses

The demand for villas and townhouses is consistently high, and their prices are increasing faster compared to regular apartments. For example, in the sought-after area of Dubai Hills, the price for a three-bedroom townhouse starts at760,000 dollars...while the price for an individual villa can reach...1,370,000 dollarsIf we talk about apartments, you can pay as little as for a studio in a residential area, for example, Jumeirah Village Circle.150,000 dollars.

Investments in Thailand

For those facing financial constraints, investing in real estate in Thailand can be a good alternative. This country attracts many investors from the UAE and Hong Kong, while Russians and Europeans are also actively investing in Thai projects. American capital has traditionally been present in this country, and in recent years, there has been an increase in Chinese investments. In Thailand, the price of small one-bedroom apartments starts at70,000 to 80,000 dollars.

Purchasing real estate in installments

Just like in the UAE, local developers offer the option to purchase property under construction in installments. Typically, the scheme looks like this:

• The client pays 30% of the total housing amount.
• The remaining 70% is paid in installments.
• The final payment is made at the stage of receiving the keys and can range from 30% to 50% of the total cost.

It's interesting that the apartments can be resold at any point during construction, and the new owner will continue to pay the remaining 70%. The seller can expect additional...10-15%If they receive returns from their investments, and if they wait for the completion of construction, the potential profit may increase.

Buyback programs

For investors looking to minimize risks and simplify the management of their investments, buyback programs are offered. These schemes operate in both European countries and Thailand, with the latter option having a lower entry cost. For example, the price of a one-bedroom apartment with a buyback option starts from90,000 US dollars.

There are several developers in Pattaya and Phuket that offer buyback contracts ranging from 3 to 10 years, with the option to sell at a price that exceeds the original.10-15%Analyzing current trends, it can be confidently said that the real estate market in these regions offers numerous investment opportunities.

In the real estate sector, there are many attractive investment opportunities, where some projects not only offer buyback options but also provide guaranteed income throughout the duration of the agreement. This income usually ranges from 7 to 9% of the property's value. Such investment schemes are also actively developing in the UK housing market. For example, starting the construction of a small holiday cottage in the picturesque Scottish countryside, with a cost ranging from £140,000 to £150,000, upon completion, the value of such a property can increase to £240,000.

Investments in facilities for the elderly

Currently, investing in properties designed for elderly living is gaining popularity in the United Kingdom. Although this option may seem unusual to many investors, this sector has already established itself firmly in the European market. As in the previous case, a buyback mechanism is implemented at the end of the contract, which can last from 5 to 25 years. Depending on the length of the contract, the value of the apartments can increase significantly:

• In five years, the investor can expect a return of 115% on the initial investment.
• After 25 years, it's already at 150%.

The investor acquires ownership of a unit in a nursing home, which has its own cadastral number, and transfers it to a specialized management company, receiving 8% annually of the value of the development property. However, it is important to note that the right to reside in such housing is not provided for the investor and their relatives.

Strategies for maximizing profit

There are various strategies that help maximize profits while minimizing costs. One such strategy is participating in presales - the preliminary sales of residential properties, which are particularly popular in countries like Thailand. During the presale stage, you can purchase an apartment at a price that is 50% lower than the cost of completed housing. Moreover, after the main sales begin, even before the construction is finished, such properties can be resold for a profit of 10-15%. The key in this process is to choose a reliable developer correctly.

Checking the developer

If a construction company is just starting its operations in Thailand and does not have any completed projects, it is useful to check for all the necessary permits.

• confirmation of land ownership;
• a construction project approved by the relevant governmental authorities;
• environmental permit.

Obtaining the latter can become quite a challenging task, but without it, full-fledged construction is simply impossible.

Profitable offers and sales

It is important to note that in the very first moments when a developer starts obtaining permits, one can come across the most advantageous offers. Therefore, it is crucial to carefully study the reputation of the builder. There is also the possibility of purchasing real estate at actual sales, where prices can be reduced by 30-50% from the market value. This makes investments in real estate quite attractive to a diverse audience.

Conclusion

By investing in such projects, one can take a successful step that opens new horizons in a growing field. Additionally, it is important to keep an eye on new market offerings and be ready to respond quickly to interesting deals.

Conclusion

In conclusion, after analyzing the real estate market, I have come to the conclusion that despite the phenomena of economic downturns and crises, unique investment opportunities still exist. If one chooses the right strategy and takes into account local and global factors, the impact of which on property values is hard to overestimate, it is possible to significantly increase the chances of success.

Understanding the nuances of the market and its dynamics is the key to successful investments. On one hand,rise in housing pricesIn a number of countries, this segment shows resilience; on the other hand, potential investors must be aware of the possible risks. Due to political and economic instability, the threat of local downturns adds an additional layer of complexity. Investing in foreignreal estate requires careful analysis—from studying the characteristics of specific properties to assessing the market as a whole.

Key aspects for investors:

• Research of local real estate markets.
• Assessment of the impact of global economic factors.
• Analysis of the rental yield to property price ratio.

While studying various aspects of investment attractiveness, I realize that understanding the criteria, such as the ratio of rental yield to property price, becomes a tool for making more informed decisions. It is also important to remember that even in uncertain conditions, real estate maintains its reputation as a reliable asset with real capital growth potential.

Prospects for the future

In the future, I hope that interest in real estate will continue to grow, which will help stimulate the economies of countries and improve the overall situation in the markets. Thus, for those looking for reliable investments,real estate marketIt remains an important and attractive choice that can provide both stable income and the potential for capital growth. It is essential to approach this process wisely and attentively, not only to preserve your investments but also to increase them in the long term.