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The hottest spots on Earth

publication date: Dec 23, 2010
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Jordan beachAndrea Kirkby discovers new property investment opportunities, but which UK agents will be intrepid enough to sell them?

There’s nothing as uncool as wearing last year’s fashion. Think back to the ‘hot’ markets of 2006, and most of them – Bulgaria, Estonia, the Costas – have come down to earth with a crash. There’s a new generation of property hotspots now; will they do any better?

Jordan is literally, as well as metaphorically, hot with average summer temperatures of thirty degrees plus in the capital, Amman. There are no restrictions on foreign ownership (other than a five year minimum holding period, which prevents ‘flipping’), and though the market saw a decline of 10-15 per cent from its peak through 2008-9, with an oversupply of luxury apartments, and high construction costs, it now appears to be headed back towards growth.

Amman, JordanReal estate consultant Asteco’s Q3 2010 Jordan report shows villa prices slightly down, but both rentals and prices for apartments increasing in the period. According to Aida Najjar, manager of Asteco’s Jordan business, “premium residential products in good locations are still sought after, due to limited stock.”

The factor that is likely to attract attention from foreign investors is the number of large projects now in process. Some have been mothballed, but one of the biggest, the Marsa Zayed resort, is still going ahead, with Phase One completion expected in 2014. This project will transform the prospects of Aqaba as a meeting and conference centre as well as a tourist destination, with offices and a marina as well as several hotels and a large number of resort properties. At the same time, air traffic into Jordan is growing (Amman airport saw arrivals up 17 per cent in the first half of 2010), and the first low cost flights have been announced (through an Air Arabia/Tantash Group joint venture).

Iraqi emigrés have been one driver behind the market; there are estimated to be between a quarter and half a million Iraqis now living in Jordan, many of them buying into luxury flats. Jordanian expats are also now returning to the country from America and buying property there. New home finance packages are also expected to boost the market, as is an end to a freeze on rental rates that began in 2000.

The economic fundamentals are good. GDP per capita is low, at USD 2,423, but King Abdullah is reforming the economy and liberalising the markets. GDP is now growing at 3-4 per cent, though still slower than the average in 2002-8 of over eight per cent. Rental yields in Amman range from 7 to 8.5 per cent – way below levels seen in 2006-7 but still better than can be enjoyed in more developed markets.

The difficulty for British buyers will be finding an agent. A search on Rightmove scores precisely zero properties; Homesonsale features a number of apartments and development sites, but all the agents represented are Jordan-based. The market is wide open for a UK agent to start promoting Jordanian properties , who will be brave enough to step in?

Potential in Peru
Cuzco PeruAnother market that is currently interesting some of the cognoscenti is Latin America, where the property markets appear to be booming and the credit crunch doesn’t seem to have had any effect. Aidan Rankin of Property Frontiers believes both Peru and Colombia are interesting prospects. “They are rebuilding their economies and gaining the benefits of peace,” after decades of internal strife.

Properties in Peru’s capital, Lima, are currently seeing price increases of eight per cent plus, in line with GDP this is rising at nine per cent according to the Central Reserve Bank of Peru. The five year construction boom shows no signs of slowing down, with high end properties doing best, particularly in the sought-after Miraflores area. Cuzco too is seeing a boom, with secondary cities such as Arequipa only slightly behind the trend.

Government subsidies and housing improvement schemes have helped the market; it’s estimated that there is still a shortage of 300,000 or more homes, despite rapid construction. There are no restrictions on foreign ownership, though mortgage availability for non-Peruvian purchasers remains low (often with a 50 per cent deposit and high interest rates).

Gross yields of 10-13 per cent, with smaller apartments producing higher yields, look attractive. However, the regulations are vastly pro-tenant (it can take three years to get a non-rent-payer out), and once the mortgage has been paid there may not be much left. The interest rate was recently increased to 11.25 per cent on New Sol denominated loans, to control economic overheating.

Remax obviously believes Peru has a bright future; the company launched its first offices in Colombia and Peru in 2009. Increasing liberalisation of the market by president Alan Garcia has led to a booming economy and Peru is now the only Latin American country besides Chile and Mexico whose debt is rated investment grade by the ratings agencies.

But as with Jordan, there appear to be no UK agents marketing Peruvian property. And local experts wonder whether the market will be able to keep growing at this rate long enough to make entry worthwhile.

Fascinating Fiji
FijiAnother ‘hot’ market is Fiji, where temperatures rarely drop below 26 centigrade, and Australian and Kiwi leisure buyers are returning to the market, according to Philip Toogood of Fiji-based Bayleys Real Estate. Properties have been increasing in price by between 15 and 35 per cent a year; whether that will be the case in future, remains to be seen.
Property Frontiers points out that Fiji now has an increasing number of resorts being developed, but currently it’s easier to buy land plots. David Stanley Redfern, for example, has land available on Koro Island from £16,000, with planning permission already in place. (Build costs start around USD 45 a square foot.)
However, mortgages don’t appear to be available, though some developers are offering finance. The fact that the country remains in military control, after a coup some years ago, does count against it as an investment property destination; it currently appears stable, but political problems have deterred tourism in the past and there is no guarantee they won’t again.

Mesmerising Malaysia
While Latin America and the Middle East have some interesting emerging markets, perhaps the most interesting are in Asia, where economic growth continues. Andrew Hawkins, head of international at Chesterton Humberts, points out that “Asia is leading the recovery in economic growth, which underpins Kuala Lumpur, Malaysiaproperty market performance.” Asian countries are seeing the fastest growth in the number of high net worth individuals. In Malaysia, it’s recently grown by 33 per cent and while some of these buyers are now investing in the London market, they’re also putting their money into domestic property.

Malaysia is an interesting destination from the point of view of the property investor, as it offers a guarded welcome. On the one hand it has a government scheme – Malaysia My Second Home – supporting foreigners who want to retire or relocate, while on the other hand it bars foreigners from buying lower priced properties. The minimum price for foreigners was recently doubled to USD 145,000, or MYR 500,000.

Malaysia wasn’t immune to the credit crunch; GDP actually fell 3.6 per cent in 2009 after growing at over five per cent a year since 2002. This hit the property market, which saw prices slightly lower in 2009, together with lower levels of property transactions, but it appears to be recovering fast. The only problem area is high end condos, where over 50,000 unsold units are likely to depress prices gains (though take-up is slowly improving).

On economic grounds, Malaysia looks an interesting location for investment; the cost of living is still low compared to the west, while economic growth is fast. Once commodity-driven, Malaysia is now developing fast into a modern knowledge-based economy, and this together with a large government stimulus package should see economic growth resume this year. Property Frontiers features Malaysia as one of its preferred markets, and points out no visas are required for UK citizens, making it a good choice for holiday properties.

Mortgage availability is excellent, even for foreigners. Eighty per cent loan to value is available, with up to 30 year repayment terms, and local banks can take as little as two weeks to process applications.
The one fly in the ointment for investors is that the rental market is rather small; 85 per cent of Malaysians own their own homes and only six per cent of housing need is met by private rental. However yields are good, ranging from 5.5 per cent on larger flats up to eight per cent on smaller condos, and housing law is fairly pro-landlord (though the courts are slow).

There are a number of hotspots. Buy to let property in Kuala Lumpur covers mainly apartments in tower blocks. The city is still growing fast, with the population increasing at five per cent a year according to a recent Economic Transformation Programme report, and its economic wealth increasing at double that.
However tourist resorts may be the more interesting property as far as UK agents are concerned. Sepang Gold Coast is a massive development just over an hour’s drive from Kuala Lumpur, targeting the luxury sector. London-based Second Home Malaysia is marketing the Golden Palm resort, 399 properties on a palm-tree-shaped promontory (where have we seen that before?), as an investment; investors can expect a net eight per cent rental yield with a 15 year rental package. Sepang Gold Coast is a relatively new development, but Port Dickson has always been a weekend retreat for Kuala Lumpur residents. Borneo Property, based in West London, is now selling properties there from £134,000.

Who is brave enough?
Malaysia appears to be the best marketed of these markets in the UK, with a number of agents already involved. However, these appear to be mainly small agencies dealing only with Malaysia; out of the major names in overseas property I checked, only Property Frontiers is yet dealing with Malaysian real estate.
That seems a pity, as these new ‘hot’ markets do appear to have long term good fundamentals driving them. Take a step back from the property markets and look at global investment flows as a whole, and it’s obvious that relatively, the developed world is losing ground. Recently, financial adviser Hargreaves Lansdown issued a guide to emerging markets which broke with the advice that investors should put only five per cent of their money into this area. Instead, they suggested 20 per cent as a minimum, and as much as 60 per cent for risk-friendly investors.

The same may be true for property; it’s the emerging markets where the growth is going to be for the next twenty years. But UK agents appear to be missing a few tricks. Most are still concentrating on the traditional favourites of France, Spain, and maybe Italy; other firms are promoting investments in agricultural land or biofuels plantations, rather than trying to sell residential property to shell-shocked customers. Perhaps agents simply despair of being able to attract property buyers who have already burnt their fingers on Bulgarian or Spanish property. But there’s money to be made in emerging markets, for those smart enough to get in now.