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| Sound real estate investments |
Lately, real estate has become a motive of interest for all. From homeowners to builders, newspapers, realtors, everyone seems to have an opinion about property: it's too expensive, the bubble will pop, real estate prices will go up more. Opinions differ, but few bother to do some global comparative analysis.
Real estate became a refuge for funds worried about the stock market, and later, for money looking for superior returns. On the long run, real estate is usually a good investment. Notice the "usually", please. On the short run, in order to obtain superior returns, an even more careful analysis is required.
Comparative property price analysis is the base for a sound investment. What point is there in doing countrywide real estate analysis when we live in a global world? Shouldn't the analysis be more detailed and include all of Europe, and even other continents?
Swissdom believes that proper real estate valuation is essential in determining what property to buy, and where to buy it. These are some of the many questions we ask for each one of the available real estate investment alternatives:
1. Demographics
Is the population in the property's region increasing or decreasing? How is the age pyramid evolving? What is the income and education level of new migrants?
2. Employment
Is unemployment moving up, down, or stable? What kinds of jobs are being created?
3. Ownership
What percentage of homes are rented or owned? Are there a lot of renters that can have access to credit? Are there fiscal incentives or disincentives towards owning property?
4. Historical prices
Are property prices historically high? Are they high compared to rentals, hotel nights? Are they high compared to shares?
5. Real estate rental market
How is the real estate rental market? Lots of empty houses? How about offices? If I buy and rent out a property, what return will I get compared to a bank deposit? How much will the bank lend me? How much do I save if I buy the property and take a mortgage, compared to renting?
6. Interest rates
Are they high or not? Which way are they likely to go? If they go up, will that impact the borrowers, and real estate prices? If I fix a rate for a long period, will I be able to afford the payments on my house?
7. Leverage
Are there a lot of borrowers? Are they leveraged? Are they borrowing for property they live in? Borrowing for a first home, holiday home? How do banks react when property prices fall?
8. Supply and demand
What land and buildings are available? What real estate alternatives exist in that region? Is that region unique?
9. Legislation and taxes
Are my assets protected? What taxes do I have to pay to buy the property, to hold, and to sell? Are there incentives to renting or to owning?
10. Exchange rates
Am I buying property in a country where the exchage rate is undervalued, overvalued or at fair value?
11. Livable
If buying this property makes no business sense as an investment, is it at least a house that I will enjoy living in? Is it in a region where I can live safely with my family? How will I be taxed? What is the cost of living of that region? Is it at least a good place to spend my holidays?...
11. The future
How will the region, where I am planning to buy, evolve in the next 2 to 10 years? Is that likely to influence the real estate market?
12. Geopolitical
Am I buying in a safe country? Am I a sitting duck when I buy real estate?
Based on the above we recommend the following asset diversification for European Based investors:
France, Switzerland, Austria, Germany - 30%
Eastern Europe - 15%
Russia - 5%
South America - 15%
Home country -35% |
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| Avoid inflated property: the US, UK and Ireland. |
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When you answer the above questions it becomes pretty obvious that some locations are no longer interesting. Take Ireland for instance. The boom in real estate prices is such that it features the highest average prices per square meter in Europe. Prices have gone up and now it is time to sell, not buy.
The same applies to the UK. We have been advising our customers to sell in the UK and buy in France. It is not just our clients that have moved. Many Britons have moved across the channel, and as that movement increases, prices will fall. In fact, at the time of this editing, the first signs of the fall are visible.
The US is a particularly inflated case. Low interest rates, high leverage have made prices go up too much. As interest rates go up the pressure on borrowers will start to increase. Prices will fall.
There are however large differences within each of the above markets, which means that some regions, like London, will fall a lot more than others. |
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| Inflated, but ok for a holiday: Spain. |
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| Real estate prices in Spain have gone up fast. However, tourism has gone up too. So, even though property prices are high, and are likely to fall, it is better to be stuck in Marbella than in Southampton. There are still good opportunities around, if you look. But unless you are in a hurry, you might want to wait. This is a clearly overvalued market. |
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| SWISSDOM S.A. - Route de Florissant 1 - CH-1206 Geneva - FAX +41 22 346 6956 |
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