Economical Factors No Real Estate Agent Will Explain You: Part 4 - Local Economic Factors

The set of articles should act as a guideline for current and future real estate investors and it will explain some basic fundamentals to follow, that no real estate agent explain you about.

Local economic factors:

Local and national indicators cooperate together, however they occur within different time frame and impact on investment.

Job Growth – can be defined as economic growth by sector. To satisfy aggregated demand companies expand their production lines therefore new work places are created to cope with increased demand. It appears on economic boom cycle with rising inflation.

Migration – flow of human capital from out or into the county due to economical, political or social reasons. Migration from the country may be related to economic slowdown, political instability, warfare or natural disasters, where migration into the country can be stipulated due to economical growth ( where people move freely) due to  natural disasters or warfare ( where people are forced to migrate). When we talk about economic migration, work force is attracted by more advanced living conditions (social, financial), however it may be restricted entry for certain nationalities.

Path of Progress – is closely related to economic growth of selected investment region. In a scenario where well known brands are moving into the area, new transportation links are established or major improvements are on the way to economic wellbeing- these are the signs to look and follow towards lucrative investments. To purchased properties in early economic progress area is investors dream as rewards for purchasing and holding may exceed even most optimistic expectations.

New Construction – occurs due to economic growth of the region. Local and National factors form scope, location and capacity of new construction. To build a new building it is lengthy process and may take number of years, therefore having that in mind it is essential to follow planning permissions approved and new construction commencements in the area. This will allow understanding the supply of real estate stock and determining your investment strategy, now and for the next 2-3 years. Future demand cannot be ignored by any means, as commercial space purchased off plan now, may be off demand when building is completed, this scenario will lead your property to increased area competition and lower rent yields.

Success in real estate investing is based on data accessibility; your knowledge how to interpret this data and investment aims. For more diversity and security use modern portfolio strategies, never neglect due diligence and do not fall in “love” with properties.

 

Brazil Tops Residential Growth In 2012 But Globally Property Markets Are Slowing

Brazil has recorded the highest annual increase in prices, up 15.2% year on year, but the pace of growth is slowing in residential real estate markets across the globe.

The latest global house price index from Knight Frank shows that overall house prices in mainstream residential markets increased by just 0.1% in the three months to the end of September and by 1% in the last 12 months.

It means that mainstream global property prices stand just 5.2% above the lows hit in the wake of the financial crisis in the second quarter of 2009 The international real estate firm says that this stagnation is likely continue well into 2013.

Six markets, Brazil, Hong Kong, Turkey, Russia, Columbia and Austria recorded double digit annual price growth in the year to September and Europe was the only world region to see prices decline, the index shows.

The Eurozone's 17 member states have on average seen prices fall by 1.8% in the 12 months to September, Greece is positioned at the bottom of the rankings, with a 11.7% decline in prices. Greece has now pushed Ireland off the bottom slot where it has been for five consecutive quarters. Ireland has seen its rate of decline improve, up from -14.3% a year ago to -9.6%.

With the Eurozone now in its second recession in three years buyer confidence is at an all time low and it is no coincidence that all the bottom 12 rankings are occupied by European countries this quarter,ђ said Kate Everett-Allen, of Knight Franks international residential research department.

South America has seen growth of 9.8% and Asia Pacific is up 4.2%. But the markets in Asia Pacific are slowing. ґLooking east, Asias policymakers are offering little hope of an Asian driven recovery. ChinaҒs new leadership looks set to continue with stringent property cooling measures and new lending restrictions in Hong Kong are likely to limit the availability of credit, explained Everett-Allen.

The United States is showing signs of growth. Prices are now 3.6% higher than in the third quarter of 2011, vacancy rates are at their lowest level since 2005 and housing starts are up 49% year on year.

 

But Everett-Allen warns that the US fiscal cliff, the crunch point when tax benefits are due to end and spending cuts commence at the end of 2012, could extinguish this hope.

ґIn summary, confidence, affordability and debt are constraining Europe. Strict lending and the looming fiscal cliff may dent the early signs of growth in the US while regulatory measures in Asia are keeping housing markets in check, she said.

ґThe current period of stagnation looks set to continue well into 2013, she added.

Russians Becoming More Interested In Property In The Balearic Islands

More Russians are becoming interested in buying property as a second home in Spain’s Balearic islands and in moving to Spain to live and work.

Statistics for the first nine months of 2012 show that after Catalonia, the Balearics are the preferred destination for Russian tourists to Spain and many of them are falling in love with the area and deciding to buy property.

Some 102,121 Russians travelled to the islands during that time and estate agents are hosting expecting demand from Russian buyers to increase.

Anna Batizi, head of International Sales for Moscow Sotheby’s International Realty, works closely with her Ibiza and Mallorca franchise counterparts. ‘Lifestyle is the single biggest draw for Russians when it comes to the Balearics. These are the perfect holiday islands blessed with well over 300 days of sunshine a year, something that Moscow lacks,’ she explained.

‘The capital, Palma de Mallorca, is vibrant and sophisticated, the islands’ infrastructure well developed and the hundreds of kilometres of coastline provide perfect boating opportunities. Add 26 golf courses, 60 or more vineyards and a superior standard of living add to the interest,’ she added.

As often happens, the real estate market in the Balearics is following the tourism lead with many Russians making the transition from holidaymaker to holiday home owner. Prices compare favourably to other destinations that have captured Russian interest such as the south of France, the Italian Riviera and Lake Como.

 

A proposed new law in Spain that will offer residency permits to property buyers from outside of the European Union is adding to the appeal for Russian buyers.

‘Our experience shows that well to do Russians have developed exquisite individual taste having travelled all over the world and owned various properties in both Moscow and abroad. They place importance on style as well as substance with an eye on value for money,’ said Daniel Chavarria Waschke, managing director of Balearics Sotheby's International Realty.

‘Factors such as nearby private schools, resale potential and price square metre are driving the transactions we’re involved in to the same degree as size, status and lavish fixtures and fittings once did. This is a new generation of Russians who are, in turn, also thinking of their next generation,’ he added.

He pointed out that prices on the islands weren’t as affected as heavily by the economic crisis as in mainland Spain as local authorities have been sufficiently far sighted to limit construction and protect the landscape, this gives confidence for future investment potential. Local banks will lend up to 60 or 70% of the property’s value to foreign purchasers and build quality beats, on the whole, that of the mainland. Accessibility from anywhere in Europe is another factor that appeals to the Russian business mindset.

For the tourism industry, Spain had already broken the barrier of one million Russian tourists by September this year and the country sits in third spot after Egypt and Thailand for Russians holidaying abroad. The Russian outbound tourism market has the highest growth rate in Europe and passenger flow to Spain is expected to increase by 20 or 25% next year. Russians also spend up to 50% more during their stay in comparison with other nationalities.

Land Plots Released In Brazil For Overseas Property Investors

Overseas investment in property in Brazil has hit an all time high and, as the fifth largest country in the world, prime land plots are increasingly regarded as a good investment for any portfolio, it is claimed.

In the build up to the 2014 FIFA World Cup and the 2016 Olympic Games, the Brazilian government is predicting that the economy will grow at an annualised rate of 4% or above for 2013.

There has also been an increased amount of Foreign Direct Investment (FDI) pouring into the country over the past 12 months. A recent report by Ernst & Young Terco estimates that FDI into Brazilian real estate can be counted at between R$5 billion and R$10 billion in 2012 so far, perhaps fuelled by the much publicised Accelerated Growth Program (Programa de Acelerao de Crescimento, PAC) which was implemented to improve the country's infrastructure in preparation for both sporting events.

 

With an estimated R$800 billion allocated to the programme, which includes repairing and upgrading the roads and the construction of a high speed train linking Sao Paulo and Rio de Janeiro, savvy investors are seeking out prime plots of land and real estate now, while prices are still affordable and the possibility of capital appreciation is high.

Property firm Knight Knox International, which has been selling property in Brazil for many years, has recognised the increased investment potential in the country and has just launched three new land plot sites, which it believes offer terrific value to investors.

磑Land plots in Brazil are the perfect example of an investment opportunity that has a great potential for capital appreciation, said Mike Sefton, property consultant at Knight Knox International.

ґGreat locations, amazing price points and more importantly planning permission, are all important factors when purchasing land, which is why we have only sourced projects that we are confident will deliver strong returns for our clients, he added.

The plots include Rio Hills in Rio de Janeiro which are available 100% freehold with pre-launch prices starting at ң21,076. Construction licenses are in place on all lots and an experienced management company is in place should investors choose to build on the land. The firm describes is as an up and coming area with lake and mountain views just 45 minutes away from downtown Rio.

The Plantation plots are located in The Discovery Coast, Bahia, and come with planning permission for high standard villas. It is described as a tropical paradise and a favourite holiday/retirement destination for wealthy domestic Brazilians with prices starting at 30,000 for a 366 square meter plot.

There are also plots at Capongo Beach, some 35 minutes south of the city of Fortaleza. There is planning permission for 600 villa plots on approximately 80 acres of land with prices starting at ã12,000 for a 250 square meter piece of land. Roads, curbs and street lights are already in place.

Jakarta Expected To Have Strongest Price Growth In Asia In 2013

Luxury residential property prices in Singapore and China are showing signs of stabilising after declining over the past six months, according to the latest index.

Meanwhile, luxury residential prices in Hong Kong rose a further 1.7% in the third quarter of the year with year to date price growth totalling 5.7%, the residential index from Jones Lang LaSalle also shows.

Across the nine luxury residential markets in Asia monitored by the firm, average capital values rose by 1.9% quarter on quarter compared with the 0.8% recorded in the second quarter of 2012.

The index also shows five out of nine monitored markets saw an increase in capital values during the quarter, while the remainder recorded minimal or no change.

Luxury residential prices in Singapore stabilised after correcting for two consecutive quarters, largely supported by end user demand.

Average prices also began to stabilise in China, helped by fewer price discounts from developers. Primary capital values for the high end market in Beijing rose by an average of 7.4%, although due mainly to larger units being launched, while capital values for luxury apartments in Shanghai were largely unchanged.

While Jakarta continues to outperform all monitored South East Asian markets with quarter on quarter price increases of 6.3%, average prices were flat in Manila and Kuala Lumpur and rose modestly in Bangkok.

The form says that a significant amount of new supply over the next one to two years is limiting upside potential in these markets.

The residential market in Hong Kong has been particularly strong this year, thanks to low interest rates and stronger buyer sentiment, according to Joseph Tsang, managing director and head of capital markets, Jones Lang LaSalle Hong Kong.

Hong Kongђs capital values are expected to see a mild correction over the short term after the government introduced buyers stamp duty on foreign and corporate buyers in late October. However, any further downside risk should be limited by tight supply and low holding costs,Ғ he said.

Looking ahead, Jane Murray, head of research, Asia Pacific at Jones Lang LaSalle, predicts that policy restrictions in various markets, such as special and buyers stamp duty in Hong Kong and home purchase restrictions in China, should remain in place at least until 2014.

She said this has the potential to limit sales activity and further price increases despite low interest rates. ґCapital values of Singapores high end properties are expected to edge up modestly in the next twelve months, mainly supported by domestic buyers. Among the emerging South East Asia  markets, Jakarta will likely to see the strongest price growth for the next 12 months due to solid local demand,Ғ she added.

Economical Factors No Real Estate Agent Will Explain You: Part 3 - Flow of Funds

The set of articles should act as a guideline for current and future real estate investors and it will explain some basic fundamentals to follow, that no real estate agent explain you about.

Flow of Funds - a set of accounts that is used to follow the flow of money within various sectors of an economy. Specifically, the account analyzes economic data on borrowing, lending and investment throughout sectors like households, businesses, construction, foreign investments, financial markets, etc.

 

Flow of funds into real estate sector:

 

Family Homes - Where the flow is in the early stage it is beneficial to buy, but where the trend is well established it is beneficial to hold

   Buy/Hold 

Apartments - Where the flow is in the early stage it is beneficial to buy, but where the trend is well established it is beneficial to hold. Follow taxation laws

   
   Buy/Hold

Raw Land - Buy when money begins to flow and hold when money is flowing. Allow some time for adjustments, seek signs of declining.

  
  Buy/Hold

  Office - Buy when money is flowing into office building Hold during that period.

  Retail - Buy when money is flowing into office building Hold during that period.

Flow of funds out of real estate sector:

Family Homes - When the money start flowing away of real estate market it is beneficial to sell at that or before it as prices will decline

   
  Sell

   

Apartments - When the money start flowing away of real estate market it is beneficial to sell at that or before it starts declining. Retain in case you can maintain;

   
  Sell/Hold

  Raw Land - When trend becomes well established it is too early to Sell, try to sell  

  before that, otherwise Hold

  Office -  When trend becomes well established it is too early to Sell, try to sell before 

  that, otherwise Hold

  Retail - When trend becomes well established it is too early to Sell, try to sell before    

  that, otherwise Hold

       Corollary; national trends have direct impact of capitalization rates (Cap rate) and indirect impact on Net Operating Income (NOI). The aim for each property owner is to have inflation increase on your rent charges to a greater percentage when your expenses. The result of that is to have NOI increases actually to exceed the rate of inflation on % basis. Borrowing rate (interest rate) on the amount financed should be less than prevailing market capitalization rate. Low and moderate inflation rates generally keep interest rates low, as borrowers do not demand high rates for fear of inflation. Flow of funds by divided by sector, time and amount is a good indicators which investment sectors are attractive and performing well according to current market. When stocks are hot – real estate is not. Saturated sectors leave little room for growth, so it is recommended to sell before it starts declining.

 Interest Rates up = Capitalization Rates up;

Capitalization Rates up = property Prices down;

Interest Rates down = Capitalization Rates down;

Capitalization Rates down = Property Prices Up;

High Inflows of funds = Capitalization Rates down;

Capitalization Rates Down = Property Prices Up;