Unless you’ve been on holiday in Antarctica for the past 6 months you know that these are economically uncertain times; and this fiscal downturn is different from any that’s gone before. This is the first recession pattern to emerge since the balance of economic power has shifted (markedly) from West to East, with Latin America closing in on Asia with only a few years’ lag.
Whilst this may be bad news for many, particularly those who bought properties in stressed markets right at the peak of their boom, it does make finding profitable property abroad today and for the future possible if you are just prepared to look beyond Europe to find emerging economies with strong room for continued growth based on strong and sustainable fundamentals.
In this article, Deanne DuKhan, Portfolio Strategist at Experience-International explains where there is room for property price expansion even in these economically uncertain times…
The new players on the economic landscape are already formidable competitors, and while everyone agrees the old guard will struggle in the next few years, no one seems sure what the global picture will be when this storm is over. For savvy investors, the key strategy in this environment will be surprisingly simple: flexibility. Any investor who is not open to what was previously considered adventurous investing will undoubtedly be penalised for his or her shortsightedness. Success will come from willingness to throw out the old rulebooks and an ability to seriously consider alternative assets, new sectors, and above all, new markets.
Tangible assets are an obvious strategy that is turned to in times like these. The percentage of direct property holdings in fund portfolios, for example, tends to go up not down, during a downturn. This is because the managers of these funds recognise the need to offset the instability of capital markets, an arena where money invested carries the risk of absolute losses – not an appealing prospect. Real estate assets carry an inherent baseline value, meaning that no matter what, the investment carries little risk of outright loss of capital.
If your savings and investments are parked in UK (which will likely be US-linked) financial products, you’re in for a very bumpy ride, with no real way to determine the outcome when the dust settles on the upcoming recession.
If you are, however, willing to think outside traditional comfort zones, then there are plenty of bright lights on the investment horizon, ready to reward those who are both sensible and yet open-minded. Even during the boom years, the fund managers who achieved the highest returns on their clients’ investment were those who sourced their holdings from all reaches of the globe. Today, this is no longer considered an ambitious strategy; it’s the only strategy worth having.
Where are the bright lights, then? India and China are old news now, and the obstacles they still face are formidable. The trick now is to find markets that are still undervalued (they do exist) and have fundamental drivers of economic growth that are not contingent on sustained west-bound exports nor western sources of finance. The ideal source of income stream would be from a combination of Asian banks and Middle Eastern, particularly from Gulf countries such as the UAE. Islamic banking in particular is set to be one of the most profitable sectors in the world this year and next, and any economy that draws strongly from this income pool is likely to experience continued steady growth across the board.
This is not enough to base a strategy on, of course. There are still other boxes to tick to find a market with exceptional investment potential in this climate. An economy that is burdened with bureaucracy, instability and corruption will not be well placed to rise above the challenges of external pressures. Governments that act quickly and pro-actively to keep growth on track while holding down inflation, will race ahead of the pack.
Using this criteria, one market stands head and shoulders above the rest: Malaysia.
Emerging as the Asian hub of Islamic financial services, a factor that will potentially drive Kuala Lumpur to stand alongside New York, London and Hong Kong as the world’s financial capitals, with a strategic geographic position bridging Indonesia and Singapore with the rest of Asia, Malaysia has demonstrated impressively progressive, free market practices, encouraging investment and targeting winning industries for future growth. Inflation is low, and projected by the IMF to remain stable, and unemployment rates are lower than in the UK and projected to remain so for several years. GDP growth is estimated by the IMF to be 6% to 7% – as much as triple the rate of growth in the UK!
Unburdened by the overheating pressures facing many emerging markets, with exceptionally strong economic policies, several major fast-growing industries, and extremely low asset prices relative to similar economies, fund managers have started to move beyond Kuala Lumpur in search of Malaysia property holdings that will boost profits for their portfolios. The real estate market on the western coast in particular has severe supply limitations, and sites with proximity to the capital will go on to command a premium not only by regional standards, but by a global standard.
The good news is that you don’t need to be a hedge fund player to access these opportunities. You will need an open mind and an understanding that while the West will struggle to find its feet in the next few years, some nations are on the path to real economic riches that will shrug off the rest of the world’s worries.