Where to invest in real estate this year

Year 2017 promises to be an exciting year for real estate investment. With more and more developments popping up in the world’s key emerging markets, the eyes are away from Europe and the US, and onto countries such as Mexico, Philippines, Sri Lanka and Pakistan. These countries not only offer a more appealing climate zone but also the potential of better returns for real estate investors, says leading property portal Lamudi Lanka Ltd.

Property and plot prices are generally lower, as well as material and labour costs, buying you more bricks, mortar and space for your money, not to mention the potential for better returns. 

Investing in real estate carries with it a certain amount of risk but has the potential to be very rewarding if investments are chosen wisely. 

A key starting point is to identify the aim of your investment. Are you looking for something that will provide short-term returns or are you in it for the long-haul? Are you looking to buy to live, to re-sell quickly, to re-sell in the future or to rent out immediately? As well as identifying the desired purpose of your investment, a further key ingredient for success is staying on top of the latest developments and trends within the real estate market. 

Real estate developments 

and trends for 2017

One of the biggest developments in 2017 will be the use of drone technology and virtual reality in real estate. It will enable estate agents to show properties to potential buyers, without the need to visit the property. This will save time and money for all involved but as the investor, beware; there are many things not visible to the naked eye, such as structural damage, damp, mould, noises in the neighbourhood, unpleasant smells and so forth. 

2017 will also feel the ramifications of events such as the Brexit and US elections, which left the global markets shaken in 2016. The announcement that the US Federal Reserve has increased interest rates by 0.25% also threatens to stall the market in 2017, which could have a slowing effect on potential property investment returns. 

On the plus side, 2016 has seen a boom in the sharing economy, such as car sharing services, taxi sharing, Airbnb and office space sharing, a trend which we predict will continue into 2017. The sharing economy is based on the concept that the full price of purchase is often too high for the majority, so one person buys and rents out, to capitalise on periods when services or spaces are typically not used. Its effect on the real estate market is apparent, with more people buying to rent out easily through online platforms but be aware, there are little regulations on such free sharing and countries differ on their regulations regarding these services. 

It has also had an effect on real estate prices, in some areas leading to a superficial increase in property prices. Mexico City is an example of where rental and property prices have increased significantly in the last years, as many local entrepreneurs as well as foreign investors buy up property to rent out in the short-term and sell on in the long-term. 

However, these markets still offer some great investment opportunities and when compared with property prices in Europe or the US, are still reasonably low. 

Identifying the key markets in 2017

A good indicator of a lucrative market, is a metro with reasonably high rental prices but comparatively low purchase prices. These areas offer potentially profitable investments but it is important to also take into consideration the potential growth and changes in the area, in particular if the area is undergoing mass development. It is also wise to look into the history of the area, such as ground conditions, water supplies, earthquake history, gang trouble and flood history. Lastly but equally important is to become familiar with taxes, insurance obligations and interest rates of the area or country in which you wish to invest.  

Whether you are looking to buy to live, to sell or to rent, here are some key markets to look into for 2017.

The emerging markets

The Philippines – The residential property market in the Philippines performed extremely well in 2016, due to healthy economic growth and the trend looks to continue into 2017, making it a lucrative market for potential property investors. According to the BSP National Bank, the real estate index rose by 9.2% nationwide in Q1 2016. However there were emerging trends that the CBDs of Metro Manila were experiencing a slow in property prices, with some areas, such as Fort Bonifcio, increasing by just 2.6% compared with the National Capital Region (NCR) which experienced an overall increase of 9.7% and areas outside the NCR performing equally well, with an overall increase of 9.4% in Q1 2016.

Further notes: If you are a foreign investor, it is important to note that foreigners cannot buy land in the Philippines, only lease it for up to 50 years, renewable for a further 25 years. It is however, possible to buy a house, as well as apartments and condos. In the case of apartments and condos in high rise buildings, foreign investment is capped at a proportion of 40% of the building. 

Pakistan – Pakistan is another real estate market that has been steadily growing over the past few years. Many developments that had been stuck in the planning stages for the past decade are now coming to fruition, putting some attractive housing on the market for the country’s entrepreneurs and young business professionals. It also has a string of fresh architectural talent rising through the ranks, offering potential homeowners the ability to design and realise the house of their dreams. 

One of the perks of buying property in Pakistan is that the buying costs are relatively low. It is often the hidden taxes that can sting a property investor. In Pakistan however, the buyer pays only around 8% of costs, which include Capital Value Tax, Stamp Duty, and Registration.

Fee and Property Transfer Tax

Mexico – Property in Mexico remains a lucrative investment, with housing prices showing a rise of 6.38% during the year to Q2 2015. The Peso is currently weak but in comparison, the Dollar is strong, leading to much investment from abroad, in particular in the resort communities, according to the International Consortium of Real Estate Associations (ICREA). 

The country’s capital, Mexico City, has seen property and rental prices boom in the last years, as the city becomes a popular long-stay destination for foreign visitors. Areas such as San Rafael and Santa Maria are being quickly bought up by local entrepreneurs, as well as foreign investors and there remains a healthy demand for renting from local, as well as foreign visitors, making buying to rent, a lucrative investment, with moderate gross 

rental yields.

Further notes: For foreign individuals and non-residents, there is a withholding tax of 25% on gross rental income, a tax which many have been avoiding through the use of online property rental sites. Whether 2017 will see a clampdown on this is uncertain.

Sri Lanka – Since the end of the civil war seven years ago, the country’s economy has boomed and with the election of the new president, Maithripala Sirisena in January 2015, many Sri Lankans are returning to the country. There has also been a boom in the tourism industry, creating a new demand for hotels and apartments, along with significant investment in transport links, in particular in Colombo, tourist attractions and general services, as well as an increased feeling of safety for foreign visitors. Following this increase in demand to buy, build and rent, the country is attracting the attention of many foreign real estate investors, who see the potential for a lucrative investment. 

The biggest house price increases were seen in four of the country’s provinces. The biggest was in the Northern Province, which saw house prices soar by around 23.47%. This was followed by more modest increases in the Central Province (3.1%), Sabaragamuwa Province (2.9%), and Western Province, excluding Colombo (1.2%).

The US

Detroit – The city has gone through some rough and tough times in the last decade but offers potential investors a tidy return. Houses for sale are in abundance, prices low and rent prices reasonable, with a good potential investment recoup rate within the first year. 

Chicago – Not quite as lucrative as Detroit but house prices are still reasonably low, with a steady rental price, offering potentially good returns on buying rental properties.