YWR: The World's Worst Real Estate Markets and why they're a Buy!
Disclosure: This is market commentary and personal views only. These are not investment recommendations. For that seek professional help.
We’ve all heard how much real estate markets have boomed in Canada, Australia, Switzerland and the US.
But what’s the use of that?
What’s the use of hearing about a real estate market after it’s gone up for 10 years?
It’s more useful, and profitable, to be researching markets which have been going down for 10 years.
And that’s what we do at YWR. We go and identify the worst real estate market in the world and consider why they could be set up for a turnaround.
And we’ve got 4 good ones for you.
The 4 Worst Real Estate Markets in the World.
Market #1: I am a major market, and have been asleep for 20 years. Recently, my currency crashed, which got people’s attention. Now global investors have rediscovered me, but the move is still early. When I look around at my competitors in the rest of the world and see large cities with out of control crime and immigration problems, it makes me certain I am the future. I am the new Switzerland. I even have skiing. Come get on board the trend, while my financing rates are still low.
Market #2: Not so fast #1. You might be clean and safe, but I have style and much more fun. I also have skiing too. I know you think your food is special, but my cooking is the most popular in the world and I’m a major tourist destination. Better yet, I’m not as isolated as you. I am in Europe. I was never a financial capital, but my creative industries are thriving and it turns out creative industries and fashion are a big thing too. My main city is booming and students globally are starting to realise the value of my universities (more and more of which are teaching courses in English). My real estate prices crashed after the GFC and never quite recovered like other markets in Europe, but things are picking up now and this is the opportunity. Style, fun and profits.
Market #3: Amigos….you are both fabulous, but I am the best investment. In US$ terms my prices are down over 50% from the highs in 2012. I am also considered a fun country, and often considered to have the most beautiful people in the world. Come to my beaches and see for yourself. I am also an enormous country with vast resources of energy and minerals and an agricultural powerhouse. I feed the world (well China at least). My currency has been in a slump because of a downturn in the commodity markets, but that is the opportunity for you.
Market #4. Look guys. When it comes to fashion and culture you have me beat. I know I’m not a great brand. I have a President whom nobody likes, but if you can look past him, you might find a real estate investment opportunity. My currency has had an epic crash and in US$ terms my property market has averaged -3%/year for over 20 years. I am literally the worst performing market in the world. But this makes me a highly affordable place to go on vacation. I have great weather and many beautiful beaches to visit. My tourism numbers are climbing steadily and my airports are pumping (day and night). I am definitely a growing tourist destination, but I might also be a future business hub too because…. I don’t like to brag, but… I’m literally the centre of the world.
A quick word on Methodology:
We’ve analysed 38 global residential real estate markets using the BIS data. The problem with BIS data is that the data is indexed (which is good), but each market has a different starting year. Data for some countries goes back to the 1970’s (Switzerland, Australia, Canada), while others starts later such as 2005 for China. This makes the index numbers not comparable. The BIS data is a country composite so it won’t capture everything, but it’s still a useful guide to a market’s performance.
Another consideration is that the data is all in local currency. Markets where the local currency is crashing, and there is hyperinflation, appear to have the best returns. To normalise for all of this we reindexed everything to 100 starting with the year 2000. We also used quarterly FX rates to convert prices to US$’s. The result is a US$ price index for each country starting in the year 2000 with the incremental price movement for each quarter a combination of both local price gains and the FX move.
For countries where the data starts later than the year 2000 I keep the local prices at 100 and added the currency move. This is important to consider for China. The property market was strong from 2000-2005 but the BIS never captured it with their data so China’s returns are understated. Greece is another one. The BIS data starts in 2006, so Greece never gets credit for the pre-GFC run up, which exaggerates the effect of the subsequent crash in 2009. India starts in 2009 and Turkey also starts in 2010.
It’s also important to consider the year 2000 as the starting point. It’s why Russia is the 5th best performing market in the data (6% annually in US$). In 2000 Russia was coming off their default in 1998. You were buying Russia at the lows and the returns over the next 20 years would turn out to be some of the best in the world. Something to remember.
OK. Let’s get into the data then consider the 4 stinkers.