What is it that makes one destination a property hotspot whilst another will never enjoy the benefits of a booming property market? The simple answer is supply and demand. But whilst supply and demand are market drivers in themselves, it is the market drivers that affect supply and demand that need to be understood to successfully assess whether a destination or property market is on its way up and have hotspot potential.
Here are some of the most important market drivers.
This is possibly the single most important factor to consider before making any property investment. The location of a property is directly linked to the return on investment you can expect from both capital growth and rental yields.
Comparing current property and rental prices in the immediate and surrounding areas of any proposed investment will provide first-hand knowledge of pricing. If possible, pay a visit to the area to better understand it. Needless to say that if the investment is primarily for summer holiday makers then the climate needs to be warm and sunny. If the investment is primarily for skiers then good prolonged snow fall is needed.
Investments in infrastructure are one of the best signs of an emerging property hotspot. Government investment into an area is in particular a big plus because it tends to attract money, as well as work and infrastructure improvements. New airports, roads and rail links, as well as expansion of existing services and amenities, are strong signs of economic growth and commitment by the local authorities.
Accessibility and transport links
Accessibility always help to open up new areas to tourists and investors. Affordable and reliable transport links, new low-cost airline routes, new and upgraded airports, roads and rail lines as well as the time it takes to reach a location all play a role in determining whether a property or area will turn out to be a good investment.
Low-cost flights in particular can increase demand for holiday homes and rented accommodation. However, no buyer should solely rely on buying into an area on the basis that low-cost airlines are flying in. If routes do not prove sufficiently popular, or if airport costs rise, airlines may pull out and hurt those letting and resale opportunities.
Local services and amenities
New or expanded leisure facilities – such as ski lifts and golf courses – have a positive impact on property investment potential. More restaurants and cafés, shops and supermarkets are equally positive signs of a growing community.
In areas where permanent homes predominate, good-quality schools is increasingly having a substantial impact on property prices.
Local demand and ownership ratio
Unless your strategy is to only invest in resort properties in the established beach destinations, a key element to successful property investment is to invest in areas that have a strong local demand. That way, you avoid limiting future resale to second home or overseas buyers.
Consider as well the ownership ratio. That is, the proportion of households owning their homes as opposed to renting. The ownership ratio is a good indication of the demand for rentals versus home ownership and a sign of whether ‘flip’ or ‘buy-to-let’ is the most suitable investment strategy for that market.
This ratio depends partly on culture, but home ownership tends to rise steadily along with incomes. Governments can sometimes play a role by enacting measures such as tax cuts or subsidized financing to encourage and facilitate home ownership.
Tourism is a major factor that enables many emerging property investment markets to create a successful real estate market. Visitors, from overseas or from other pats of a country, have a significant impact on property markets, influencing resale prices and rental yields.
Better transportation is opening up a wider range of locations as potential property hotspots. Areas of cultural, natural or recreational appeal – and in particular destinations that invest in their offerings – can benefit from more visitors and and hence be a stronger investment proposition.
High-profile events – think Olympic Games or the World Cup – have helped to boost property values. Host cities benefit from the employment opportunities, tourism growth and infrastructure improvements, boosting both property prices and rental yields.
Economic performance, both nationally and regionally, is a key factor. Look for countries with expanding economies that help to bring in foreign direct investment and tourism.
A good sign in emerging hotspots is large companies relocating to the area as this often generates other investments and improvements in infrastructure. In these areas, both letting and resale markets are often expanding and ‘buy and hold’ strategies may be very rewarding.
For countries and regions relying on tourism, a critical factor is that they allocate sufficient investments in marketing and infrastructure to attract construction and visitors. A potential risk is that too much planning permission may be allowed, resulting in oversupply and downward pressure on property prices and rental yields.
Markets where mortgages are available to buy property will exhibit stronger demand for property than markets where you cannot get mortgages. Whilst most countries have an established system in place for mortgages, some do not accommodate overseas investors, or have restrictions that negatively affect demand. However, the interest expressed by outside investors has forced many regions to introduce friendlier investor requirements.
With terrorism around the world on the increase and many political, religious and legal implications to consider, it is essential that the stability of the location is carefully considered prior to any investment.
A stable political environment where sound economic policies are being pursued over the medium-term is an essential backdrop to successful investing. Overseas property markets are often driven partly by foreign investors who are reluctant to buy into unstable countries. Whilst it is possible to achieve significant returns by investing in a troubled region of the world, there are significant risks, too.
Brazil is a prime example of how political stability is followed by economic growth and stability. As one of the BRIC countries (Brazil, Russia, India and China), Brazil is one of the world’s better-performing economies. Against a backdrop of significantly reduced political unrest and economical risk, local and international investors have reaped the rewards.
Before you spend too much time on research, look at whether there are ownership restrictions for foreign buyers. Favourable laws for foreign ownership would have a positive impact on property investment.
Changes in legislation such as limitations of the number of new planning permissions or decisions that new properties cannot be built as close to the beach as they once could can also influence supply and property prices. Both examples limit existing supply, which means that the price of existing properties is increased.
Whilst this list is not exhaustive, it offers important considerations for anyone wishing to invest. It serves to demonstrate the importance of doing your homework as part of any potential property investment.
Keep in mind, too, that every market around the world is different. Define your personal goals and investment strategies. It might take time, but the most important aspect of property investment is to stick to your goals and strategies.
Published by International Luxury Real Estate.
International Luxury Real Estate offers a hand-picked
collection of 4, 5, and 6 star residential property opportunities
for sale across the world. Home buyers and property investors will
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communities in the world – this is resort-style living at its best.
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