Global real estate is a steal but still has its drawbacks

With the US dollar worth about 20 per cent more in euros than it was a year ago, now may be a very good time to go shopping for global real estate if you know what you’re doing. That is a large discount and may not last for long.

Then again, the US dollar could get even stronger and global real estate prices may well have further to fall.

Never try to catch a falling knife as an investor, as the adage goes. Real estate prices in many parts of Europe are on the way down, but often for a good reason. France, for example, is taxing the rich into selling up and leaving the country. Do you really want to buy a property there yourself for the same treatment? The UK’s opposition party is also promoting a mansion tax if it wins the general election on May 7.

You might do better in central states of up-and-coming New Europe in its beautiful cities like Budapest or Prague. These grand old capitals have some fine property and their local currencies trade at a discount to the euro, not just the dollar. Of course you will need the appropriate legal advice, but both countries are investor-friendly these days.

Closer to home, GCC nationals and other Arabs have a penchant for Egypt and Jordan at the moment. Egypt’s economy is recovering from the madness of the Arab Spring, while Jordan is besieged by refugees from [Syria] but reckoned to be a solid long-term investment.

The many Indian expatriates of the Arabian Gulf have not been slow to appreciate the buying power of their dollar-linked currencies in India, where real estate is widely respected as a store of value – at least for Indians. Foreign direct investment in property is still relatively rare and bureaucratic red tape probably ensures that will continue to be the case.

It sounds obvious, but the most important thing in real estate investment is to buy when the market is low, and after that, location, location, location. If you pay a low price the capital appreciation will more than make up for any disappointments on rental yields. And for renting, you also have to consider practical issues such as how to manage a property from a distance without incurring excessive charges. Attractive gross yields can vanish to nothing or less, net of all fees and taxes. High utility charges are bankrupting Budapest landlords. Did you know that? Local knowledge is priceless.

The Airbnb.com revolution is making it easier to do short-term lets on property you own overseas. But this is still pretty hard to organise, unless you have relatives in the country concerned or commercial links. Trusted local partners may not prove entirely trustworthy. How much would it cost to fly back and forth to sort out a new boiler? But then again, who would do that job for you?

It is also worth considering how interest rates are likely to move in the coming years and how that is likely to affect global property prices. At the very least, higher mortgage costs will limit property price growth and could well cause a sharp market correction. How would you feel caught on the wrong side of that market dynamic?

That said, property always has a residual value. LJ Hooker, a real estate agency in Dubai, told me last week that its biggest client, who owns 3,500 units, will pay 20 per cent less than the distressed selling price for any property in Dubai. Who wouldn’t? But that’s a floor under the value of the city, albeit not one you would want to have to rely upon.

Remember, cash does give you liquidity and property can be rather illiquid, turning it from an asset to a liability if the market turns against you. Rising interest rates would not be good for property prices. Then again, no major central bank has raised rates in five years and the oil price drop suggests a global recession is coming, rather than an economic expansion.

Bricks and mortar always has its attractions but is not always a wise investment. You might find it less hassle to rent and not risk your money. I’ve rented a €500,000 (Dh2.09 million)apartment in Budapest this summer for US$700 per week.

Who’s getting the better deal, the tenant or the landlord? And when we close the door and return to Dubai, any maintenance problems are down to him. Property ownership is not without its downside.

Peter Cooper is the editor of ArabianMoney.net

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