Welcome to the third and final part of a specially commissioned and impartial report for ShareCrazy.com from property expert Iain Maitland. Here Iain examines property investment in speculative markets...

PART 3: PROPERTY INVESTING IN SPECULATIVE MARKETS

By Iain Maitland, www.ukpropertyalerts.co.uk and www.internationalpropertyalerts.co.uk, free weekday e-news and free bi-monthly PDF newsletters.

Speculative property investors tend to make their money by buying early into off-plan developments in markets that are tipped to appreciate high and quickly in value. Purchasing at the ‘hole in the ground’ stage enables investors to secure a property at below market value. If they buy into a market that does then go on to rise high and fast, they can often sell on the property in 12 to 24 months, either to a follow-on investor or to a buyer in the home marketplace, and pocket substantial capital gains. The key secret, of course, is to buy into a market that is going to grow strongly in the short-term.

Turkey, Panama and India are increasingly popular with speculative property investors. All three offer potential. Turkey has seen growing numbers of tourists and property investors in recent years. The prospect of European Accession – some way off though it may be at best – is the trigger for much of the investment. Panama is increasingly popular with retirees, especially from the US. Its profile is now becoming higher amongst European and British property investors. There is certainly potential here although it is perceived to be a distant and unfamiliar market amongst some Brit investors. India – part of the super-power BRIC (Brazil, Russia, India, China) economies – is starting to attract the attentions of worldwide investors. India is currently seeing massive levels of foreign direct investment going into this market.

This third and final part of your UK-Analyst report into property investing overseas for capital growth and rental yields looks at these three, fast-growing property markets. These are capital appreciation hotspots rather than buy-to-let investments and are, arguably, amongst the best potential hotspots of all. They are, as with all speculative investments, potentially high-reward but also high-risk in nature. Property media and pundits routinely tip these hotspots as offering 20 per cent to 30 per cent annual growth. However, they are not without their drawbacks. Turkey, for example, has human rights and others issues, not least with Northern Cyprus, that may prevent it from joining the European Union, at least until these have been resolved. Panama and India do not have the transparent property markets that many Brit investors are used to at home and in more mature Western European countries. This makes cautious investors uneasy.

TURKEY

Turkey is becoming ever more popular with property investors. Brits are buying in because of its relative affordability, sun and sand and increasing Westernisation. Property prices are still, despite recent price rises, affordable compared to the more mature markets of France and Spain, as examples. You can buy an apartment in some of the quieter resorts for under £50,000. Three-bed houses can be found for up to £150,000. Villas are around the £300,000 level in less high-profile locations. There is also improving accessibility via low-cost flights and better road networks. Property prices are also rising and have been doing so since the country became an official candidate for EU accession.

According to estate agents in the main coastal resorts, apartment prices rose by 120 per cent in 2006. It is hard to assess the exact figures not least because many of the estate agents’ figures are anecdotal and unsubstantiated; a common issue in Turkey. This market also has a culture of cash payments to avoid taxes. According to the Turkish Central Bank, foreign investors put $1.8 billion into property in Turkey in 2006. It may well be much higher. The Turkish property market is not as transparent as it could be. In addition to the cash culture, the country also has issues with ownership and illegal constructions. In many respects, the property market here remains in its infancy. The mortgage market is a limited one. There are also inflation issues. The official government figure is at about 9.9 per cent .       

What Lies Ahead?

Short-term, Turkey has something to offer British property investors. It is capturing much of the sun, sea and sand holiday market that has previously been visiting the cheap and cheerful resorts in Spain and, more recently, Bulgaria. Investors tend to follow that crowd – and, indeed, more speculative ones have even anticipated it. Turkey was largely undiscovered by the Brits for many years. But now, it is a growing market. According to the Land Registry in Turkey, the number of Brits owning property here has quadrupled over the past four years from little more than 3,000 owners back in the middle of 2003. It is clear that the Brits are driving the property market in the coastal resorts. They now represent almost one in four of all property home-owners in this region.

The key to sustained, long-term growth lies with EU accession. EU membership – or anticipation of it – is the best property price-rising trigger of all. You only have to look at recent EU entrants such as Bulgaria and Romania to see that. Turkey began preliminary negotiations in October 2005 and is now an official candidate to join the European Union. But it does have various issues to resolve before this is likely to progress; not least human rights, North Cyprus and its relationship with Cyprus. European Union officials have been quoted as saying that the country has what is described as a ’plethora of economic and social reforms’ to be completed before it can join the European Union.

Since official candidate status was granted by the European Union, Turkey has brought in new human rights policies, abolished the death penalty and granted cultural rights to the Kurdish minority. Even so, there are still outstanding issues, not least with North Cyprus, and Turkey faces strong opposition in some quarters. Despite some press reports suggesting an early entry, most political and economic analysts agree that the earliest date for possible entry is likely to be 2015. The country still has various economic and social reforms to be completed before that can happen. Some analysts believe it will not join at all.

The Hotspots

Istanbul, the capital city, is currently regenerating itself to attract international businesses to locate and invest there. Accessibility is the key driver. Istanbul has been developing an improved road and rail network with a metro line to Istanbul Atatürk Airport. There are plans for more road and rail lines in and out of the city. The main attraction for businesses looking at Istanbul is the Marmaray Project. The Marmara Sea separates the North and South passages of the Turkish straits. The Marmaray Project is a rail line that will link Europe and Asia beneath the straits for the first time.

Istanbul has obvious potential. At present, the local market does not have the level of finances that would generate the capital growth and rental yields sought by most overseas investors. There is a tourist market and visitors are attracted to neighbourhoods such as Cihangir, Galata and Tophane, but this remains a relatively small and speculative market for investors. As Istanbul attracts overseas businesses, there may be a market for new apartments and other properties let to the executives and families of these multinational companies.

Many investors are focusing on the coastline which stretches from the Aegean to the Mediterranean; Kusadasi on the Aegean to Alanya on the Mediterranean. These locations are already built-up and offer less growth potential. Bodrum is probably the best-known location. Belek is a popular resort for golf lets. There are other places worth considering such as Gocek, Dalaman, Kas and Marmaris.

The fastest capital appreciation is likely to be beach resorts within easy travelling distance of the airports. The main international airports are at Antalya, Bodrum, Izmir and Dalaman. A good rule of thumb for spotting a rising market is to count the estate agents there. The main beach resorts used to have one or two at most. These days, they now have more than a dozen on average in each of the main resorts.

PANAMA

Panama is in Central America, lying between Colombia and Costa Rica. The country has a strong Spanish flavour. The official language is Spanish although English is used widely in business circles. The official currency is the Balboa. It is, however, used mainly for smaller transactions. The currency is pegged to the US dollar which is, to all intents and purposes, the currency so far as international property investors are concerned. That, combined with the current sterling-dollar exchange rate, is what makes this country of such interest to British property investors right now. As with the US, property can be bought at an affordable price. Unlike the US, property prices are going up, not down.

Panama's economy is on the move. Based on banking, commerce, tourism and mining, growth has been at an average of about 4 per cent per annum since the millennium. Inflation is low. GDP per head of $6,900 is average for the region. Panama is a growing tourist and retirement destination and is especially popular with the North American market as it is only about a two-hour flight from Miami; some overseas property pundits regard it as the equivalent of the Brits’ love affair with the Spanish Costas. There is some truth in that. Panama’s tourism and retirement sectors are dominated by Northern American tourists and retirees in Panama City and also along the Pacific Ocean at Costa Blanca. The potential for property investment really comes from this mix of a growing economy combined with the ever-rising inflow of tourists and retirees.

Why Invest?

Brit investors who look at Panama as a prospective property investment will inevitably first ask the question, “Why invest?” Most Brits want to buy into a sound economic environment. The economy is steady and is seeing healthy annual growth. International confidence in the country is also strong. Foreign direct investment is flowing into the region. The government has responded by encouraging this in various ways, introducing tax breaks and incentives to bring in additional overseas investment and particularly into the property sector. Ex-pats and retirees moving to Panama, for example, can have overseas-sourced money remitted tax-free to Panama. This has increased the interest in this market, especially amongst North Americans.

The country has much to offer in many other ways. The country is becoming increasingly accessible, especially to those in North America. The climate is an appealing one. There is a diverse range of lifestyles on offer from the rush and hurry of Panama City to the calm and relaxed beach lifestyle on the Pacific Ocean. The country has also been in the top 10 retirement destination charts of many of the property websites and magazines in recent years.

For example, Panama topped International Living's Retirement Index for six consecutive years; 2001-2006. The magazine judged Panama to be the best retirement location on the basis of various key criteria: real estate prices, cost of living, benefits for retirees, safety and stability, health care facilites, climate, entertainment and infrastructure. It is quoted as saying, "Panama boasts the world's most generous program of special benefits for retirees, it offers easy access from the US, its cost of living is low, the landscapes and coastlines are beautiful, its population is friendly and warmly welcomes foreign residents and investors, and its capital, Panama City, is without peer in the region".

The Hotspots

Panama City is one of the most popular investment locations in the country with overseas investors. Larger investors are buying into and developing many of the older, rundown buildings here and are turning these into new-build conversions for corporate lets. There are many employment opportunities in the financial, banking and insurance sectors, especially in Panama City. The Casco Viejo district is an historic area of Panama City which is being regenerated and, as such, is seen as having potential for investors looking for both rental yield and capital appreciation. There are also commercial property opportunities in Casco Viejo. The government is offering various tax incentives and breaks to encourage further investment.

The retirement sector is looking beyond the city, as it often does. Panama has an impressive Pacific coastline and it is here that many older North American and Western European retirees are now moving. Costa Blanca is attracting much of the interest. Compared to its namesake in Spain, this Costa Blanca is quiet and remains relatively untouched by comparison. This part of Panama is a popular destination for tourists. It also attracts ex-pats and retirees from North America and Western Europe because it has a low cost of living.

Punta Barco and Coronado are the main attractions for investors right now. These resorts both offer high-quality beach and leisure facilities such as golf and are popular investments with increasing numbers of Brits. With all property investing, and especially so in new and emerging markets, it is essential to remember the fundamentals of successful property investing; supply, demand, accessibility, facilities, infrastructure and so on. There are many smaller land and development opportunities now being offered in Panama which are further away from major towns and resorts. The further they are from airports and roads, leisure and entertainment facilities and infrastructure, the slower they will be to appreciate in value. Indeed, some may never appreciate at all. There are many anecdotal stories of Brit investors who have bought into a muddy field as ‘the next big thing’ in all sorts of hotspots all over the world; and the ripple effect never reached out that far.

INDIA

India is widely regarded by many speculative property investors as the most promising property market in Asia. Surrounded by Pakistan, Afghanistan, China, Nepal, Bhutan, Myanmar and Bangladesh, the country has the Arabian Sea, the Indian Ocean and the Bay of Bengal at its coastline. Property investors are looking mainly at the traditional Indian city of Mumbai (formerly known as Bombay) and at the increasingly popular, European-style, coastline of Goa. India is one of the fastest-growing economies in the world. It is expected to become the world’s third largest economy by 2020 as one of the four BRIC super-economies; Brazil, Russia, India, China.

The property market in India opened up when the Indian government permitted 100% foreign direct investment into the country. As a consequence, Dubai-based Emmar Properties - the biggest listed property developer in the world – and other leading developers such as American International Group Inc, High Point Rendel, Kikken Sekkel, Lee Kim Tah Holdings and Cesma International have been moving in.

The Indian property market is now growing at an annual rate of 14 per cent and is currently worth more than $14 billion. Even so, the market is expected to reach $102 billion by 2015. Much of the property growth is coming from the demand for residential housing, shopping malls and multiplexes. Many developers are already building in second and third tier cities. Projects to the value of $3 billion are being developed in Mohali and Amritsar. Other developments are unfolding in Jallandhar, Shimla, Kanpur, Lucknow, Sonepat, Panipat and Karnal.

What’s It All About?

India is a highly attractive market which offers many property opportunities to speculative investors as developments roll out to the second and third tier cities. However, and as with all overseas property markets, it an unfamiliar environment that is especially unforgiving to new entrants. The country is geographically huge, culturally diverse and has inconsistent levels of infrastructure. It also suffers from immature payment systems and restricted IT business platforms. The credit culture is still in its early stages.

The best advice that is often given to Brit investors at this stage in the market’s development is to ‘buy’ local knowledge through on-the-ground partnerships. This can prove beneficial as it can assist in negotiating the many cultural intangibles that exist. The rule of the law is also relatively immature in this part of the world. In Asia, by and large it’s all new, unlike in the West. This all combines to make India a high risk/high return market – and on-the-ground partnerships an essential part of investing success.

The Hotspots

Mumbai is the best-known city in India amongst foreign investors, including Brits. It is also the most expensive and many investors are therefore looking more closely at present at other locations, such as Delhi. Jasola is a part of Delhi that is worth consideration. It offers accessibility to residential areas such as New Friends Colony and Sarita Vihar and to commercial areas such as Nehru Place, Okhla Industrial area, Noida and Faridabad. Land prices here have already doubled in value within the past two years as there are limited plots of land.

Some investors watch to see where the shopping malls are opening – reasoning that these reflect the biggest growths in population and levels of consumer affluence. According to Merrill Lynch, by the close of 2007, Delhi will have 35 malls covering 22 million sq ft, Mumbai will have 42 malls covering 19 million square ft, Banglore will have 14 malls covering 6 million sq ft and Kolkata will have 13 malls over 4 million sq ft. By 2010, the number of malls is expected to grow to more than 250, mostly into second and third tier cities.

Goa, the fast-rising tourist and retirement destination, has a high profile in the worldwide media. It currently receives about 2.5 million tourists a year from the domestic and international markets. International carriers offer 500+ air charter flights between Goa and Western European countries. Goa is also well-connected with the rest of India by road, rail and air. Goa is home to the thriving port of Mormugao where a new outer harbour will further boost the region’s economy. At the moment, Goa is the most popular investment location amongst Brits. But a ripple effect – where the main location is perceived to be expensive and people look further afield for better value – starting to be felt. Various smaller resorts may become popular in the coming years. Margoa, Panji and Cavelossim, as examples, are already seeing building developments.

Iain Maitland is a well-known property writer who runs a range of information websites including: www.ukpropertyalerts.co.uk -  www.internationalpropertyalerts.co.uk - www.francepropertyalerts.co.uk -  www.americapropertyalerts.co.uk - www.spainpropertyalerts.co.uk  www.investmentpropertyalerts.co.uk - www.lifestylepropertyalerts.co.uk.

Iain Maitland compiled this three-part ShareCrazy report into where to invest in overseas property for capital growth and rental yields. Part 1, Property Investing In Mainstream Europe, looked at France, Bulgaria and Germany; tipped by many investors to offer promising growth and yield prospects in the next two to three years. Part 2, Property Investing In Emerging Markets, looked at Croatia, Cape Verde and Morocco; three property markets that are widely regarded by the industry as being ‘hot’. Part 3, Property Investing In Speculative Markets, looked at India, Panama and Turkey. These are three of the more high-reward, high-risk property markets. Updates on what’s happening in these countries are issued regularly via International Property Alerts’ free weekday e-news and free bi-monthly PDF newsletters.