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Where Are This Year's Real Estate Investment Hot Spots?

Jeremy Gates

StratREAL

17 January 2008

Despite talk of a residential property market crash and many wealth managers now being underweight in commercial property, there are still great opportunities available in real estate if you know where to look. The first is reasonably close to home in Germany. The country is emerging from a period of low growth following reunification and investors are betting on the future performance of the German economy which is still the third largest in the world. Investors should consider modern, refurbished, multi-tenanted office buildings in key German cities - Berlin, Dusseldorf, Hamburg, Munich and Stuttgart, particularly those attractive to domestic companies. Office rents are set to rise from low bases and vacancy rates are falling as new jobs are created in the service sector after a period of high unemployment. Despite credit crunch and sub prime fears, the fact is that the US is still the world’s largest economy and set to remain that way for the foreseeable future. This means that there continues to be a steady flow of equity into the real estate market from foreign investors. Good investment opportunities can be found nationally in sectors that will perform even if the economy slows including university and retirement accommodation. The south and south-eastern states are also good investment bets. Here the economy is growing at twice the average rate in the US and they accounted for 25 per cent of the country’s two million new jobs last year. Although there are signs that UK housing market is entering a downturn, the prime residential market in London boomed during 2007 experiencing extraordinary growth over the year of 18 per cent to become the best performing property market in the UK for the second year in a row. It continues to attract wealth from foreign investors seeking homes or buy to let investments. The largest returns are seen in Chelsea, Mayfair and Belgravia, closely followed by Holland Park, Notting Hill and Kensington. This market is extremely strong, fuelled by London’s international billionaires and the recent spate of record city bonuses. There appears to be no sign of a slow down in the demand that significantly outweighs the supply. Prime locations that offer the potential to upgrade to a top quality specification are good opportunities. Looking further afield, Mexico is now the world’s thirteenth largest economy, with a stable currency and a solid political and business climate. Investment in middle income, residential property and development is increasingly attractive to the foreign investor. Partnerships with local developers provide the most attractive option. The country’s young population and the number of households is expected to double as children leave the family home. Mexico’s President Caulderon has encouraged private mortgage lending and vowed to double the size of the housing sector where there is currently a shortfall of more than five million units. In addition, a significant number of Americans are buying holiday homes here. The investment property market in Qatar has been strengthened by global confidence in Dubai’s market and as a result investors believe it offers massive growth potential. In a relatively short space of time the country has enjoyed substantial economic growth, a boom in the size of its population and has a rapidly expanding infrastructure. The government of Qatar has encouraged outside investors by allowing for the foreign freehold ownership of real estate in certain parts of the country. Good long term investment opportunities can be found in mixed use development schemes with local partners in locations with good transport access by car. However, just as important as identifying investment hot spots is the way property transactions are structured and financed. Whilst it is easy to make money for clients in a bull run when finance is cheap and prices rising, it is much more difficult when the market slows and the cost of finance increases.