Thinking of going global? Places to buy property and those to avoid

If there could be only one rule of investing, it would be diversify — and then diversify some more. That typically means buying a mix of domestic and global stocks and bonds. More adventurous investors have, however, found another way to broaden their asset mix; investing in global real estate.

Buying homes and condos in the right markets — those that are still growing, are popular with international visitors interested in renting and have a thriving local culture. It can be a good way to keep a portfolio afloat during downturns, says Ashley Osborne, a Hong Kong-based executive director of international properties for Colliers International.

According to Osborne, housing price fluctuations can be relatively immune to global market movements. “Certain locales also offer higher yields in the form of rental income profits than bonds,” says Yolande Barnes, director of residential research for Savills, a London-based property research firm.

“The best places to buy are in international cities that attract a lot of foreigners such as New York or Japan,” says Barnes.

So where are the best places to buy a rental property? Which cities or regions should you avoid?

Tokyo’s rental boom

Japan has been going through major economic changes this year. Its central bank has embarked on a multi-billion quantitative easing programme, which seems to be spurring economic growth. According to Barnes , the move has also made the country more attractive to real estate investors. Thanks to the government’s bond buying programme, Japan’s ten-year government bond yields have hit all-time lows. 

According to the prime minister’s office, rents increased by 2.6 per cent in July over the year before, while land values increased by 0.1 per cent year-over-year that month, the first gain since 2008.

With the economy growing better than it has in years, Barnes expects rents and prices to continue improving. Currently, investors can get an annual rental yield of about five per cent.

Japan’s market, however, is unusual in that housing values tends to depreciate over time, she says. New homes and condos are often rebuilt after 30 years, so it’s important to look at land values, rather than home prices when selecting property.

Cautious opportunity in Cairo

Despite the political upheaval taking place in the city, Cairo offers some of the best yields around, according to Matthew Montagu-Pollack, the publisher of the Bristol-based Global Property Guide.

However, investors should be careful of where they purchase property, as not every neighbourhood has potential. Look for homes and condos in the affluent Maadi suburb. That’s typically where deep-pocketed foreigners like to stay when they visit the region, Montagu-Pollack says.

Property owners can see yields as high as 9.5 per cent per year in that part of town. Outsiders typically aren’t moving to the area for good — they’re in the city temporarily and would rather rent.

Of course, with so much political unrest, it’s far from clear what the country will look like a year from now. If you’re willing to make a bet on this volatile country, the payoff can be big, he says.

Latvia’s seaside attraction

Montagu-Pollack admits that he has a bit of a love affair with this Eastern European locale. “It’s a stunningly beautiful city,” he says, “and people tend to gravitate to beautiful cities more.”

While the Baltic Sea sightlines bring renters to the region, it is the attractive 5.4 per cent yields that excite property investors. The region is experiencing good economic growth after a recession in 2010.

According to Lithuanian real estate company Ober Haus, that growth has helped increase rents — they were up about 15 per cent last year — but prices are still well below their pre-recession levels, leaving room for more appreciation. The country also has “reasonable” capital gains taxes of about 15 per cent and its laws are pro-landlord, he says.

Manhattan’s pricey persuasion

America’s most populated city is notorious for its high rents, but “what’s bad for the tenant is good for the landlord,” says Barnes, who says investors can expect six per cent annual yields.

Manhattan is attractive for one simple reason; everyone wants to live there. “It’s an entry point to an international market,” Osborne says. Still, despite that demand and high prices, he thinks it’s one of the cheaper global cities. As America’s economy strengthens, though, rents and real estate values should continue to rise.

The condo market’s values are also rising faster than co-ops, she says, and it’s more open to overseas investors. “Also avoid houses — they’re not as in as high demand, so they receive lower rents,” she says.

Avoid Hong Kong

Investing in foreign properties fails when housing prices are too high and rents are too low. While you want capital appreciation, if values rise too quickly, then yields will plummet, Osborne says.

Hong Kong’s housing prices have skyrocketed over the last decade. According to data culled by The Economist, the country’s house-price index soared 285 per cent between the first quarter of 2003 to the first quarter of 2013. It’s expensive, says Barnes, because Hong Kong real estate is one of the easier investment assets for mainland Chinese to buy.

“There’s such a weight of local money pressing on the market that the relations between rents and capital values has been lost. Hong Kong should be a no-go for investors,” she says. According to Savills, investors will only revive a yield of around 2.5 per cent.

Monaco’s high per-metre prices

While this luxurious city-state on the French Rivera is a great place to visit, it’s a terrible location for investors, says Montagu-Pollack. With its reputation as a playground for the ultra-wealthy, it shouldn’t be surprising to learn that real estate in the region is pricey.

Like Hong Kong, Monaco is attracting wealthy homeowners, but from all over the world. Knight Frank, a London-based real estate consultancy, said in a recent report that there are more than 120 nationalities living in the city.

The company also pointed that home prices are becoming even more expensive — they’ve gone up about ten per cent in 2013. Investors can expect yields of about 1.9 per cent. “Those yields are tiny,” Montagu-Pollack says.

— BBC