From an investment perspective, property is an investors dream. If we are to invest our money in shares then we will have to finance 100% of our investment up front and hope that the market performs. If we are risk adverse, then we would opt for bonds having a reasonable rate of return, however we would still have to finance 100% of our investment up front. On the contrary if we are to invest in property, we would generally finance 10% of the value of the property with the remaining balance financed through a bank loan.
If we are to purchase 10,000 shares in company X at € 10 per share, then we would have to pay € 100,000 on the date of purchase. The same goes for bonds. Whereas, if we are to invest in a € 100,000 property, our capital outlay is only € 10,000 since the other € 90,000 is financed by means of a bank loan. Within the industry this is referred to as ‘leverage’.
There is no other investment vehicle that places an investor in the same favourable position that the property market does. Why? Which other investment can we think of allows us to invest now and pay later? Which other investment finances it’s own way? In the case of property we can rent out the premises and with the income generated, we can finance the monthly mortgage payments. If this business model is utilised, which other investment allows us to invest 10% and achieve 100% ownership, have a handsome rental income pay off the loan and get a single or double digit percentage capital appreciation per year? This is only available through wise investment in property.
Over the past 30 years, the annual average returns on Real Estate investments worldwide have been 15.6% as against 12.3% for Equities, 8.5% for Bonds and 6% for cash. This is further proof that property is a safe and secure investment. It is a tangible product which we can physically see, touch, enjoy and most important of all, control. Other investments are held and managed by third parties.
The current international market situation is an ideal time to invest. Interest rates are on a downward trend - with the European Central Bank lowering it’s base rate by 1% so far - prices are corrective, rental returns have never been better and local banks are still very willing to finance property purchases. Today’s market is an incredible investment opportunity for the savvy investor.
If we had to look beyond our shores, the international property market is split into different categories - Established Markets such as Monaco, UK, Italy, France, Spain etc ; Rising Markets such as Malta, Dubai, Abu Dhabi, Morocco, Egypt etc ; Emerging Markets such as China, Brazil, Moldova etc and Emerging Markets in a an Established Environment such as Sicily, Eastern Algarve in Portugal etc.
All these markets provide different investment opportunities and risk levels. If we had to invest in an Established Market, property prices are higher, rental returns would range between 4%-6% and capital growth is a single digit percentage due to the secure nature of the investment. Rising Markets are those property hot spots that offer the perfect entry level on a capital appreciation graph. They are at an optimum position for investment since they are on the way to becoming Established Markets. Property prices are affordable, offering excellent rental returns and stable capital growth percentages. Emerging markets offer lower property prices, reasonable rental returns depending on tourism numbers and high capital appreciation, however they are not proven markets and investments would take a number of years to mature.
When thinking of which market to invest in we must arrive to certain conclusions:
What is the risk level we are prepared to take? Why are we investing in a particular country? Which part of the chosen country are we going to invest in? Are we looking at capital growth or rental returns or both?
The answers to the above questions vary according to the individual but the vision is common to many, namely, that of investing in a product that ( if researched and studied ) will not only provide enjoyment for the family and friends but also provide a source of income and a means of planning for the future.
For example, let us look at Dubai, the tiny Emirate in the Middle East that everyone is talking about. It is fair to assume that if any Capital City in Europe were even attempting to build the amount of property that Dubai is currently constructing, it would cause something close to mass hysteria. The Emirate’s 1.4 million population is set to grow by 8% year on year, equivalent to 112,000 people moving to the Emirate per annum. This year only, rents have increased by 10% and property prices were up by 5-10%. A growing population, an increase in foreign direct investment, an increase in office rentals, an increase in residential rentals, an increase in people moving to the city all present the perfect ingredients for success for the Real Estate investor.
No matter the nature of the purchase, one essential ingredient to a successful outcome to any property transaction, is what is known within the industry as an ‘Exit Strategy’. This is essential, no matter where we invest. It is extremely important to know that the country and area where we are investing has what is known as a home grown property market, meaning that property sales are not solely dependent on overseas purchasers but locals are actively involved in that market.
Trafford Busuttil
November 2008
If we are to purchase 10,000 shares in company X at € 10 per share, then we would have to pay € 100,000 on the date of purchase. The same goes for bonds. Whereas, if we are to invest in a € 100,000 property, our capital outlay is only € 10,000 since the other € 90,000 is financed by means of a bank loan. Within the industry this is referred to as ‘leverage’.
There is no other investment vehicle that places an investor in the same favourable position that the property market does. Why? Which other investment can we think of allows us to invest now and pay later? Which other investment finances it’s own way? In the case of property we can rent out the premises and with the income generated, we can finance the monthly mortgage payments. If this business model is utilised, which other investment allows us to invest 10% and achieve 100% ownership, have a handsome rental income pay off the loan and get a single or double digit percentage capital appreciation per year? This is only available through wise investment in property.
Over the past 30 years, the annual average returns on Real Estate investments worldwide have been 15.6% as against 12.3% for Equities, 8.5% for Bonds and 6% for cash. This is further proof that property is a safe and secure investment. It is a tangible product which we can physically see, touch, enjoy and most important of all, control. Other investments are held and managed by third parties.
The current international market situation is an ideal time to invest. Interest rates are on a downward trend - with the European Central Bank lowering it’s base rate by 1% so far - prices are corrective, rental returns have never been better and local banks are still very willing to finance property purchases. Today’s market is an incredible investment opportunity for the savvy investor.
If we had to look beyond our shores, the international property market is split into different categories - Established Markets such as Monaco, UK, Italy, France, Spain etc ; Rising Markets such as Malta, Dubai, Abu Dhabi, Morocco, Egypt etc ; Emerging Markets such as China, Brazil, Moldova etc and Emerging Markets in a an Established Environment such as Sicily, Eastern Algarve in Portugal etc.
All these markets provide different investment opportunities and risk levels. If we had to invest in an Established Market, property prices are higher, rental returns would range between 4%-6% and capital growth is a single digit percentage due to the secure nature of the investment. Rising Markets are those property hot spots that offer the perfect entry level on a capital appreciation graph. They are at an optimum position for investment since they are on the way to becoming Established Markets. Property prices are affordable, offering excellent rental returns and stable capital growth percentages. Emerging markets offer lower property prices, reasonable rental returns depending on tourism numbers and high capital appreciation, however they are not proven markets and investments would take a number of years to mature.
When thinking of which market to invest in we must arrive to certain conclusions:
What is the risk level we are prepared to take? Why are we investing in a particular country? Which part of the chosen country are we going to invest in? Are we looking at capital growth or rental returns or both?
The answers to the above questions vary according to the individual but the vision is common to many, namely, that of investing in a product that ( if researched and studied ) will not only provide enjoyment for the family and friends but also provide a source of income and a means of planning for the future.
For example, let us look at Dubai, the tiny Emirate in the Middle East that everyone is talking about. It is fair to assume that if any Capital City in Europe were even attempting to build the amount of property that Dubai is currently constructing, it would cause something close to mass hysteria. The Emirate’s 1.4 million population is set to grow by 8% year on year, equivalent to 112,000 people moving to the Emirate per annum. This year only, rents have increased by 10% and property prices were up by 5-10%. A growing population, an increase in foreign direct investment, an increase in office rentals, an increase in residential rentals, an increase in people moving to the city all present the perfect ingredients for success for the Real Estate investor.
No matter the nature of the purchase, one essential ingredient to a successful outcome to any property transaction, is what is known within the industry as an ‘Exit Strategy’. This is essential, no matter where we invest. It is extremely important to know that the country and area where we are investing has what is known as a home grown property market, meaning that property sales are not solely dependent on overseas purchasers but locals are actively involved in that market.
Trafford Busuttil
November 2008
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