Singapore also boast to have one of the most expensive real estate market in the world, though we are markedly behind Hongkong, who is still the title holder for
What are the main metrics that real estate investors look at when deciding in which property to invest?
It might be interesting to broaden this discussion by including international aspects
of real estate investing.
1) Location, location, location.
This has always been the main criterium when buying property, be it residential or commercial. However, it’s not because a location is now undesirable or desirable that it will always be.
For instance, with the growing importance of public transport, office real estate near railways or public transport hubs is rising in value, whereas the big office parks built a decade ago are now a distressed asset in some parts of Europe.
See for instance:
2) Demographics and debt levels.
A country or city with an important young work force will do better than a city or country where everyone is retiring and considering selling their house to live somewhere nice. Basically, this is Brazil vs. Japan. Or North Dakota (where they found shale gas) versus Detroit.
Also, check the general levels of indebtedness, income to rent and all other indicators which might lead you to conclude whether the demand is sustained by sustainable financing or not. For instance, dutch real estate has boomed in the last decade because of easy credit and very favourable tax deductions. This trend has now seriously been reversed.
3) Politics and taxes.
Why buy real estate in France as a foreigner when you know they’re going to slam a property tax on real estate not owned by french nationals?
Real estate prices in political and financial safe havens such as Switzerland, Singapore, London or Luxembourg are testimony to the fact that high political stability is beneficial to high real estate prices.
See for instance:
4) Herd behaviour & Bubbles.
If everyone is buying real estate, check what the underlying reasons are. It might be that there is no other viable alternative to investing your savings, as currently seems to be the case in certain parts of China. It might be that you are in a real estate frenzy as experienced in say, Ireland or Spain where everyone just bought real estate and construction was responsible for more than 16% of GDP.
5) Exchange rates and inflation.
Real estate is generally considered to be inflation proof. However, you might get squeezed if you borrow in your own currency and inflation and exchange rates
erode the income you get from your real estate.
6) Timing and Price.
Possibly a repetition of some of the point above but worth elaborating. Real estate, like most assets, knows a certain cycle. If you’re in a distressed real estate market where sustainable growth is starting to grow again, it’s a good idea to invest. If prices are sky high, please be careful. For instance, many Brazilians have started to buy residential real estate in Miami. This might indicate there’s a bubble in prime real estate in Brazil.
7) Climate change.
Obviously, this depends on whether you believe in this or not. If you do, please check this:
8) Time to reach
If you live in or near a real estate market which scores well on these metrics, you’re lucky. If however you live for instance in a real estate market with high prices and no sustainable growth prospects, you may want to consider investing further abroad.
That being said, if you have to take a long airplane journey to visit your investment, you may encounter problems such as squatting or problematic maintenance.
Obviously, if your investment is sizeable, this is manageable. However, it’s often hard to know a market truely well unless you live there.
Which brings us to the next topic.
9) Investment vehicles
It’s important to properly structure any real estate investment abroad, from a legal and fiscal point of view. If you have sufficient size, you can set up your own infrastructure and your own team. It might also be a good idea to pay for local knowledge through a dedicated real estate fund or a co-investment structure with a local investor. Or finally, you may want to look into ETF’s as a proxy for holding real estate.
If the driving idea is to buy a residential property where you want to live or to retire, the considerations above still remain valid but do not outweigh the pleasure factor.
In that case, real estate is to be seen less as an investment than as a lifestyle choice.