Property Investment Articles

Learning from Mature Property Markets to Invest Wisely in Emerging Ones: “The Time Machine”

Ramon recently flew in from Spain for one of our property investment courses. He is an accomplished Spanish property developer and it was clear through our discussions after the course that he "knew his onions" I asked him to write a piece for the website, so here it is - good stuff.

A number of new property “hotspots” have emerged in Europe (Cyprus, Croatia, Turkey and others) in recent years to challenge the supremacy of established second home destinations like Spain, France and Italy.

This article seeks to help investors make robust decisions by drawing from past experience in mature markets. We use the history of countries like Spain as a mirror to help guide property investments in less mature markets.

That's where the “time machine” comes in: can we revisit the experience of mature markets to project how the newer destinations might develop in the future? If we had a “second chance” to undo our mistakes, what would we do differently now?

Emerging property markets appear tempting to the “value-conscious” overseas investor who wants strong returns for a relatively small outlay. They often position themselves alongside established markets as sunny beach destinations available at a significant discount. To add to the excitement they hold up the tempting carrot of “first mover advantage” where a modest investment may potentially offer big returns.

Anyone who has applied Beware the Sharks methodology knows the folly of taking such claims at face value. We want to complement your rigorous training by helping to identify the best destinations within emerging markets in terms of specific zones, resorts and developments: how do you find the real gems that provide both quality of life and security (personal as well as financial)?

Our perspective is based on the experience of Spain, a market we know from the inside as a private Spanish family-run company established for 40 years with a mostly Spanish client base. Marbella or Torrevieja are clear case studies of mature markets, which, having enjoyed superb double-digit returns in the last 10 years now show clear signs of stalling.

If developers and investors in mature markets could travel back in time and remedy their mistakes, they certainly wouldn't waste their “second chance” (if only they had a time machine!). So let's step aboard…

SECURITY

Our experience in Spain confirms that real security has little to do with the number of security guards nor even how many CCTV cameras you can spot. If anything, these aspects suggest a feeling of pervasive insecurity, especially if you wander out of the confines of the area constantly under observation. Indeed, overseas buyers often find themselves in “foreigner ghettoes” caused by some of the following factors:

•  Most properties may have been sold to foreign buyers.

•  A lot of buyers may be keen to sell as soon as their home is delivered.

•  Many occupy their homes for short seasons or rent them out sporadically.

•  There is little mixing between residential buyers, holiday home buyers and short-term investors.

•  There may be a lack of combined promotion to sell to national buyers in the same resorts where foreigners buy. Indeed, foreign buyers might be seen as “easy pickings”.

In the above situation - all too common in mature markets - the community of owners is made up mostly of foreigners (non-nationals of the country they are in) who may know little about each other and even less about the locality they are in. This breeds insecurity making them an attractive and visible target for local criminals.

Your second chance (looking from “the time machine”):

Real security comes from community and trust. This applies equally whether you are a residential or buy-to-let investor:

•  Look for resorts where national clients have bought already. National buyers usually spend longer periods in their home, leaving any resort more inhabited. Locals will also help you better enjoy the culture of the country.

•  Make sure other foreign buyers intend to live at the resort for certain seasons (not just high season), or that they will rent their homes out continuously throughout the year. This will help to lend a permanently “lived in” feel to the resort which will be felt from the outside as well as the inside.

•  Form communities with your neighbours. Get to know them and also people outside your residential complex.

Taking the above steps helps to build security in a number of ways. Buying with national buyers leaves you less exposed to paying over the odds. Knowing your fellow buyers will help you look out for each other. Finally, your home's development will be visible from the outside as an active and integrated community. Opportunist criminals will look for easier pickings elsewhere.

COMMUNICATIONS

Infrastructure development in destinations that have grown fast is often sadly lacking. This can have an impact on both your investment and your quality of life – getting stuck in traffic jams is probably not an integral part of your dream overseas lifestyle! A lot of buyers in certain zones within mature markets have learned this to their cost.

Your second chance:

• If buying in an area of rapid urban development look hard for information on infrastructure. Identify concrete plans around the specific zone you are looking at. Make good local contacts – don't believe the agent/seller.
• If buying in lower density zones developing into “day visit” tourist centres, make sure the area has enough car parking.
• In all cases, make sure that your main entry and exit points are easily accessible: the airport is obviously critical. Check for an ample offering of hire cars both for you and those who come from abroad to visit you.

SERVICES AND LEISURE

The sun and the beach may be two of the key factors that swing your purchase. But when the sun goes away what is there to do? The best areas offer good food, shopping, cinemas, tourist attractions and so on. It's all about satisfying the expectations of the entire family or indeed, anyone who might rent the property from you.

In addition, extensive amenities and services contribute to creating a vibrant feel in the area surrounding your property which, especially at night, helps to reinforce security.

Your second chance:

• Test out the area and experience the full range of leisure and service offerings available to you, your guests and your rental clients. There is no substitute for actually visiting the area and sampling this yourself.

PRODUCT CHOICE

In a buoyant market, there is little incentive for companies selling property to adapt the product and offer real choice to clients. As a result, many buyers end up disappointed once the initial euphoria has passed – particularly if they bought off-plan.

Imagine the situation. You move in and the niggles grow. Bedrooms are smaller than you thought, the living area feels hemmed in and the garden offers little scope. Having taken your money the developer maximises his profit by cutting corners. You find yourself in a property that doesn't really meet your needs.

Lack of choice is something that we should never accept, however smooth the sales pitch seems. When we buy a car for example, we are quite used to choosing from a series of options. We may select from various colours for the body paint or the type of trim on the interior. Most reasonable options are offered by car manufacturers and customisation is the norm.

Your second chance:

• Find a property developer that gives you options to configure your property. Within reason, your developer should provide ample scope to customise almost every aspect of your home. At the end of the day, your investment is a lot bigger than a car purchase and you'll spend much more time inside it.

SOLIDITY AND PROFESSIONALISM

The need for communities like Beware the Sharks arose because of the activities of unscrupulous operators in mature markets. There is no doubt that similarly unethical companies are spreading like vermin to the newer markets.

Fortunately time and experience has allowed a process of “natural selection” to take hold in mature markets. A lot of the sharks have disappeared as knowledge of their reputation spreads and we have certainly seen plenty of them come and go in Spain. In mature markets, certain control measures have been introduced to protect the investments of clients. These measures are still not fully developed in newer destinations.

Your second chance:

• Check that the solvency and professionalism of the company building your property is second to none. Check that all legal permissions have been granted. Demand that they guarantee any payments you make ahead of the delivery of your home. Use the community of other experienced investors to find the best possible lawyer.
• If a developer provides robust after-sales service then it is usually a good indicator that they will be vigilant in sticking to commitments agreed on price, quality and payment. Speak to their past clients to establish this fact.
• That's the end of our brief ride on the time machine. We very much hope this will assist you in your property purchase wherever it may be.

Mr Ramón Fernández, Managing Director, Principado Developments (Spain)

Email : ramon.fernandez@benigar.com

Web : www.iprincipado.com

Tel : +34 965 143 660