Property

Overseas Investment: Emerging markets for 2017



With the definition of the emerging market at its most fluid, savvy investors will have to be more creative in 2017.

 With election and referendum results either staying in the news or forthcoming, global markets are in a state of flux, with uncertainty being the single common buzzword for the year.

The classic emerging market comprises locations that have previously been untouched, and perceived to be of little value. At the other end of the spectrum were locations within developed markets that didn’t have much appeal for reasons as simple as lack of industry or unfavourable currencies. A few policy changes and the tables can turn drastically.

Today, emerging markets can be anywhere, and most have many pros as cons for investors.

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Asia Pacific

According to PricewaterhouseCoopers and the Urban Land Institute’s annual “Emerging Trends in Real Estate” forecast, emerging markets are topping lists for investment once again.

“If the results of last year’s survey – in which Japanese and Australian cities featured as investor favourites – could be seen as a vote for ‘flight to safety approach’, the emergence of four emerging-market destinations as the top choices in this year’s results reflects a very different mandate – the ‘quest for yield’,” the report stated.

To that end, the region’s five strongest markets for 2017 are Bengaluru (Bangalore), Mumbai, Manila, Ho Chi Minh City and Shenzhen. Also making the cut were Jakarta, which ranked seventh, Bangkok (eight) and second-tier China (20), complementing the expected mature markets on the list: Sydney, Tokyo, Auckland, Melbourne, Hong Kong, Singapore and China’s first-tier cities.

Bengaluru’s strengths are rooted in its dominance in the business process outsourcing industry and its demands. But with investment restrictions in India that prevent individual purchases by non-nationals or residents, Manila and Ho Chi Minh City lead the emerging Asian market charge.

Manila’s growing, diversifying economy and strong domestic residential demand have put the Philippine capital in a strong position over the past few years. However, Rodrigo Duterte’s new government and a possible land supply crunch could be hurdles the city will need to leap.

In Ho Chi Minh City, the commercial heart of Southeast Asia’s fastest growing economy, investors will be forced to wait and see what President Donald Trump’s vow to dismantle the Trans-Pacific Partnership will mean for the manufacturing-heavy Vietnam.

Questions linger in the traditional emerging markets of Cambodia and Myanmar. Rooted in tourism and vacation property, both locations are sitting in holding patterns, with Myanmar’s market almost wholly focused on institutional investment: retail, office, serviced apartments and hospitality.

In Cambodia, a construction boom in 2016 led to oversupply, and currency controls in China and uncertainty in the US and Europe – all major investors – have set up a subdued year. But with yields flirting with 7% to 10% in prime locations, Cambodia is still an attractive risk, particularly in the affordable, mass residential sector, where the government is hands-off.

EMEA

In Europe, the Middle East and Africa, all eyes are on Liverpool, the latest of the UK’s northern powerhouse locations to gain safe haven traction, Brexit or not. But the region has a host of spots on the rebound: Dublin and Madrid would hardly be considered emergent by normal standards, but Brexit has focused interest in Ireland and recovering Spain, so-called bargains.

Dublin has been home to a vibrant tech industry for many years (Google, Facebook and Twitter have European headquarters there), and Ireland was Europe’s fastest growing economy for three years running to 2016. Funds are flocking to Dublin, and property prices are expected to grow 8% in 2017. On top of that, the country has no plans to exit the EU.

At the other end of the spectrum, Spain’s economic struggles were severe enough to threaten the Eurozone at one point. While caution is still key in Spain, Madrid’s office sector has embarked on its rebound, a new government is dedicated to stability, and unemployment is down – all positive indicators for the coming months and years.

Dubai is working its way through some much-needed reinvention. As Knight Frank notes in its Global Cities 2017 forecast, Dubai has been working overtime since its 2013 property peak to rebrand itself tourism and tech-friendly. To complement its financial hub status, the government has invested heavily in the creative industries, luring MNCs such as IBM and Google.

“As Dubai hopes to attract young, innovative and tech-savvy individuals, developers have realised the need to develop real estate that caters for a range of consumer income levels,” said Knight Frank.

“A comparable review of the current market supply of residential product versus upcoming projects reveals that developers are reducing the size of apartments in order to make them more affordable.”

The Americas

Job creation and affordability are the defining factors for US markets in 2017. Traditional gateways (San Francisco and New York) will always have their place, but high prices are sending investors to the country’s emerging second tier for stronger yields, and in many cases, similar perks.

Once again, Texas – represented by Austin and Dallas – tops PwC’s markets to watch, but emerging locations squeezing into the top 20 include Raleigh, Denver and Salt Lake City.

North Carolina’s capital benefits from affordability, low business costs and a strong education network, one of the best in the US.

“These features continue to draw interest from the real estate investment world,” PwC said.

Denver is in the grips of a hospitality boom, 15-year low unemployment, a growing services industry and population growth attributable to its high quality of life.

In under-the-radar Salt Lake City, “The healthcare, finance, technology, and leisure and hospitality sectors have been the leading job creators in the market. The strong job growth is allowing incomes to rise faster than the national average,” as well as to attract a prime workforce and tenant pool.

Finally, Santiago, Chile, has earned a reputation as the New York of the south, complete with a swish café culture, a strong stable economy and attractive residential property, but it is Bogotá, Colombia, that Knight Frank likes for 2017.

Finally achieving the stability it has lacked for so long, the multinationals have started to move in under a streamlined and welcoming trade environment. Colombia is a local market, but with global tech, mining, infrastructure and engineering firms opening, demand for housing will follow, giving a boost to an already burgeoning middle class.