Infrastructure Projects Should Be Attractive

Infrastructure projects should be attractive

26/10/2010 21:04



Mexico. Due to the limited indebtedness capacity of Mexican construction companies and lack of funding, the federal government should reduce the size of public works projects so national companies can participate more.

During the 2010 Business Summit, held in Toluca, State of Mexico, Carlos Hank Gonzalez, general director of Grupo Interacciones said that 'big projects limit the number of Mexican participants.

As a country we should look to smaller pieces for a larger number of players not only to build, but also for the access to financing.'

Recently, the Mexican Institute of Finance Executives (IMEF) warned in a voice of its president that the lag that exists in the infrastructure program in the country could lead to the collapse of the construction industry.

He even added that there is a high risk of starting to see major construction companies that could go bankrupt.

Following the international financial crisis, which began in September 2008, international financial markets made access to financing more expensive, so large projects like Punta Colonet, which would become the major infrastructure project of this administration, has been stuck because the lack of funding has complicated the participation of national and international companies.

Therefore, the federal government, through Banobras, has come to promote the agenda of infrastructure projects in Mexico to various countries during 2010, such as Spain and Germany, among others, to promote foreign investment in the sector.

This lack of resources for the sector has contributed that over 2010, the construction of civil engineering work or heavy work reported a negative growth rate of -2.2% during the first eight months of this year, unlike the overall economy growing at an annual rate above 5% to the same period.

Mexico Presents 100 Infrastructure Projects In China

Mexico presents 100 infrastructure projects in China

01/09/2010 11:00



Shanghai, China, August 3rd, 2010. The government of Mexico presented in the Shanghai Expo pavilion 100 infrastructure projects to be tendered between this year and 2011, investing more than 50 billion dollars in order to attract foreign investment to develop projects of the National Infrastructure Plan 2007-2012.

The plan, created to impulse construction has attracted between 40 and 45% of planned investment, so there is still more than half of the program to the rest of the Administration, with 75% of public funding and 25% that must come from private capital.

Chinese firms can participate in more than 70 infrastructure projects that are in the bidding process in Mexico, among which some outstand such as the so-called 'Southern Arc' of highways around the capital city, with a length of 235 kilometers.

They are also attractive the future aqueduct Falcon-Matamoros, with 260 kilometers to carry water to several cities in northern Mexico, in the U.S. border, and the creation of a combined cycle power plant of 585 megawatts, among others.

'Chinese companies (builders and promoters of industry) have made very substantial investments and have a very extensive experience in infrastructure development,' said to EFE Alonso Garcia Tames, General Director of Banobras (National Bank of Works and Utilities).

Investment In Water Infrastructure Doubles

Investment in water infrastructure doubles

28/10/2010 23:44



Mexico. In the last four years were spent, per year, $21’103,000 pesos which means a record number in the application of resources.

In particular the general director of the National Water Commission (Conagua), Jose Luis Luege Tamargo said that during 2010 it will invest $24,032 billion pesos, amounts that exceeds the $10,485 billion pesos invested in the last six years as annual average, but acknowledged that more resources are needed.

The total of the resources in question represent about half of total investment, which get to be duplicates with the participation of private sector investment, 'so it is important to involve businessmen,' he said in the Infrastructure Congress and Expo 2010.

The current investment is to supply 108 million people who need drinking water, drains and sewers, although this is a record of capital to the sector, to cover the total backlog of needs.

Only 8% of the resources comprising the 2007-2012 National Infrastructure Plan are earmarked for water infrastructure development.

Luege Tamargo said this sector faces three major problems: the overexploitation of aquifers, pollution of all types of water bodies, along with 'anarchy' in the growth of rural and urban populations.
Infrastructure

Mexico Announced that in 2011 The Hydroelectric Project La Parolta Begining the Development Will Involve an Investment of Nearly $900 Million Dollars

La Parota will be bid in 2011

22/10/2010 00:00



Mexico. The Federal Electricity Commission (CFE) announced that in 2011 the hydroelectric project La Parota, located in Acapulco, Guerrero, with a capacity of 700 megawatts will be tender, the development will involve an investment of nearly $900 million dollars.

Alfredo Elias Ayub, director of this agency, said this project is a priority for the CFE, which was built by the Expenditure Budget of the Federation 2011, and once it is approved in final form might initiated the work of the tender.

He explained that all infrastructure projects have an authorization from Congress to carry them out for 3 years and in the case of hydroelectric La Parota this term ended in 2010, but now is reinstated to the budget of the CFE.

The CFE project is that construction is carried out under the scheme of financed public works, where the winner of the project should get the necessary funding to complete it, once the work is finished it is delivered to the agency and comes to international capital market to find the resources to pay for the developed infrastructure.

The hydroelectric dam is located nearly 40 kilometers from the area called Acapulco Diamante, will address the energy needs of the coastal region and support the resolution of other public service issues.

Carso Group Seeks For Gold Carlos Slim In Chihuahua Mexico

Carso seeks for gold in Chihuahua

26/10/2010 20:51




Mexico. The chairman of Grupo Carso, Carlos Slim, announced an investment of $4.500 billion pesos into two mining funds in Chihuahua to extract gold and various metals.

Through a statement, the governor of Cesar Duarte Jaquez reported that the investment announced by the business group could generate about 4,000 jobs.

One of the mining funds located in San Francisco del Oro, which aims to create 2,500 direct jobs and achieve the extraction of more than 10,000 tons per day of minerals; while in the Concheño Mine, near the Basaseachi Waterfall, is expected to create at least 1,500 jobs.

Currently, the mining sector Grupo Carso has assets in Colonel, Asientos, San Francisco del Oro, Minera Maria, San Felipe and Tayahua; mines which extract gold, silver, copper, lead and zinc.

Kuosol Will Open Opportunities In Mexico To Production Of Bio-Energy

Kuosol will open opportunities in Mexico

28/10/2010 23:26





Mexico. Kuo Group will join Repsol to form a new company called Kuosol, which is devoted to the cultivation of jatropha and the production of bio-energy.


In a statement sent to the Mexican Stock Exchange (BMV), Kuo Group reports that Kuosol, formed in Mexico with a 50% share for each group will require an initial investment of $15 million dollars and $80 million by 2014.


The new company plans that agronomic development would be completed in the next three years, in order that Kuosol industrial units are implement by 2013 and working at full capacity in 2016.


It is estimated that Kuosol will generate over 400 direct jobs and nearly two thousand temporary.


The industrial conglomerate explains that the new company headquarters will be in Mexico and will range from the agricultural operation to the industrial installation for the use of biomass plantations of jatropha curcas, a bush very resistant to get fuel.
States

Chinese Mining Company Will Invest $150 Million Dollars in Mexico

Chinese mining companies will invest $150 million dollars in Mexico

19/10/2010 02:08



Mexico. Seven mining companies with Chinese capital will invest $150 million dollars in the exploration of iron, copper, gold, silver and manganese, in Mexico during 2011 since it is consider an attractive territory for Asian capital.

The general director of Mining Promotion of the Secretariat of Economy, Jesus Martin del Campo, said the firm Jinchuan Group is already building in northern Mexico in the Bahuerachi project for the extraction of copper, molybdenum, gold and silver.

He said there are other companies such as Shaanxi Dong Ling Group which already are exploring projects in Sinaloa and for the extraction of gold, silver, lead, copper and zinc.

He noted that these firms will join the Chinese companies Mining Investment and Zhong Ning Mexico that already operate in the country.

70% of mining exploration projects in the country are held by Canadian-owned firms, the other 30% are held by Australian, Peruvian and Mexican.

Martin del Campo said that 70% of Mexico’s territory has some mineral potential and today only 20% is operated. This makes the country a highly attractive country for foreign capital.

Masare Group Investe $80 Million Pesos in Capital City Mexico

Masare Group invested 80 million pesos in Capital City
Writer Real eStrategy 2 Commercial RE News, And Corporate Offices October 22, 2010 Through an investment of 80 million pesos, the Group Masare, led by Martin Pavón Farias, put into operation the first of three green buildings and business towers that form the heart of Capital City, building complex of about 40 hectares will combine corporate offices, residential areas, convention center, hotels, restaurants, shopping centers, hospitals and theme parks southwest of the city.

Capital City is part of the portfolio of mega-projects designed by the government of Aguascalientes, with the stated purpose of accelerating "outsourcing" of the local economy and more jobs open to graduates of institutions of higher education.

Were used to detonate the last two years in public and private investments of around 500 million pesos for the purchase of land, construction of urban infrastructure and services, primarily.

OHL Plans to Raise Up To $1.4 Billion In Largest IPO in Mexico

OHL Plans to Raise Up to $1.4 Billion in Largest IPO in Mexico Since 1994
Escrito por Real Estrategy 2 Internacional, Mercado Turístico Oct 22, 2010 OHL Concesiones Mexico SA, the unit of Spanish construction company Obrascon Huarte Lain SA, plans to raise up to 16.6 billion pesos ($1.4 billion) in the largest initial public offering in Mexico in at least 16 years.

The shares may be priced at 24 pesos to 30 pesos each, Mexico City-based OHL said in a filing. The company may offer as many as 552 million shares, making it the biggest IPO in value since at least 1994, according to data compiled by Bloomberg.

Grupo Comercial Chedraui SAB broke a 22-month drought of IPOs in Mexico in April. At least two more companies may sell stock in the nation before the end of the year, Bolsa Mexicana de Valores SAB Chief Executive Officer Luis Tellez said on Aug. 3. OHL plans to use the money to finance investment projects and expand, according to the prospectus.

The sale “would unseal the value of the Mexican concessions,” said Pablo Ortiz, an analyst with Interdin Bolsa SVB SA in Madrid. “I think those concessions are high quality and are very undervalued.”

OHL hired the local units of Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA to handle the offering, which may occur between Nov. 4 and Nov. 11, according to the filing. Shares will be offered to Mexican and international investors, the company said.

More Contracts

OHL won its sixth contract to build and manage a highway in Mexico in June. The company has a 49 percent stake in the operator of the Toluca airport outside Mexico City, according to its website.

The Mexican company wants to repeat the success of an IPO by the Brazilian unit of Obrascon, Ortiz said. The Brazilian shares have more than tripled to 56.70 reais since trading began in 2005. Obrascon rose 3.9 percent to 24.6 euros in Madrid trading and is up 29 this year.

OHL reported revenue of 11.3 billion pesos in 2009, an increase of 60 percent from a year earlier, according to the prospectus. Traffic on the toll roads OHL operates in Mexico rose 18 percent in 2008 from 2007 and revenue gained 23 percent, according to an annual report.

Bloomberg

Ellipse Group Started in Early 2011 the 52 -Story Skyscraper R432 In Mexico

Ellipse Group started in early 2011 the 52-story skyscraper R432 in Mexico City
Writer Real eStrategy 2 Commercial RE News, And Corporate Offices October 22, 2010 After a virtual fast a couple of years it seems that the big real estate projects in the corridor Reforma in Mexico City begin to recover. A case of which we spoke a week is R432, a 52-story skyscraper. Be almost in front of Diana the Huntress, Sevilla corner Reforma 432, and is driven by the Ellipse Group, James Czukerberg. This is a developer with over 35 years experience and works in Santa Fe and Constituents, among other areas.

Ellipse recently served as one SAPI, has the backing of the CNBV, Guillermo Babatz and is audited by Deloitte, which has Ernesto Gonzalez. Will have 20% stake in the owner of the building to be built in an area of one thousand 800 meters. This area has been acquired in the last 18 months and spent only around 120 million pesos. The tower will mean an investment of close to one hundred million dollars and its 52 floors will have basically four different uses. The first three levels will house three thousand square meters of commercial premises, the following seven thousand seven stories focus 500 meters of office space, 28 levels will be to develop 211 luxury apartments and ten floors to a hotel.

The model will be based on the sale of the departments, representing a total area of 22 thousand square meters. Ellipse estimates obtained by this concept about a thousand 300 million pesos, of which 50% would help fund the construction. Those close to 650 million pesos will be used to build in the next 48 months. The sale will run on behalf of House & Business Group, Isaiah Ramirez, an expert in marketing real estate in the corridor. In addition to participating as partners Czukerberg Mexihom, Ignacio Leal with 15%, José Luis Sarabia, owner of the company commissary Skychef with 15%, the French group Buddha-bar with another 10% and sprayed the rest with investors.

Mexico Tourism Is Making A Comeback

Mexico Tourism Is Making A Comeback
Escrito por Real Estrategy 2 Barómetro, Internacional Oct 22, 2010 Although the recession and warnings of violence has hurt tourism in 2009, visitors to Mexico has rebounded in 2010.According to an article from International Living:

This year the tourists are back. So far in 2010, over 7.1 million international tourists have come to Mexico, a 19% increase over last year, say Ministry of Tourism officials. Even more noteworthy, tourist numbers are 6% higher than in 2008—the last banner year for Mexican tourism. (These figures are based on tourists arriving by air.

Most returning tourists are avoiding the border area, which is associated with the on-going drug war violence. Instead, they tend to head south, toward beach areas that are little affected by violence. In August, for instance, both Cancún and Los Cabos, in Baja California Sur, saw about a 30% increase over last year in the number of visitors.

Vacancies still remain high in many resort properties and rates are still depressed, however Mexico is faring better than the world as a whole which has seen slower growth.

According to LA Times:

Memories of last year have started to fade,” said Anthony Concil, a spokesman for the International Air Transport Assn., a trade group for the world’s airlines.

The sharp increase in visitors to Mexico is also significant because Concil and other analysts have predicted only modest growth in travel worldwide. International air travel, for example, was up 6% in August compared with a year earlier, according to the International Air Transport Assn.

Mexico’s Tourism Minister, Gloria Guevara, expects international tourists to reach 22.6 million this year and tourism investment is also up.

According to an article from Bloomberg:

From January to July, Mexico’s tourism industry received $1.8 billion in investment, 28 percent more than in the same period in 2009, Guevara said.

“This shows confidence in Mexico continues,” Guevara said. “Investors are still betting on Mexico and betting on tourism.”

Queretaro Mexico Investment Catapult

Querétaro, investment catapult

25/10/2010 14:05

Mexico. During the third quarter of global investments were implemented for 80 million dollars in the Queretaro Industrial Park (PIQ), thanks to the installation of 4 expansions and the arrival of 3 companies.

The general director of the PIQ, Abel Baca Atala, said that new tenants are Korean companies and Dr Enc Prima Tech, specializing in metal stampings, and the Canadian Windsor Mold, a manufacturer of plastic injection molds and die casting.

Companies are expanding their facilities Mew Korean Motech, Ronal, the Swiss capital, Embossed Queretaro, capital of Canada and Samsung, which will open a production line.

Atala Baca explained that Samsung bought this new expansion in the PIQ 36.363 meters square, which has a total of 58.951 meters square of land reserves. (El Financiero)

Mexico Grows 18.8% the Number of Visitors who Arrived By Air

Bulletin 130 grows 18.8 percent the number of visitors who arrived by air from January to September compared to 2009
Contenido de sección


Mexico, D.F., Monday 25 October 2010
130/2010 Newsletter




• Our country received 7 million 614 thousand 514 foreign walkers were flown

• The amount is 6.4 higher than the same period of 2008

The Ministry of Tourism reports that in January-September period the number of foreign visitors who came to our country by air increased by 18.8 percent over the same period last year.


This figure is also 6.4 percent higher compared to the same period in 2008.

The data collected show that tourism in our country is in strong recovery.

In the first nine months of the year, the airports in our country received 7 million 614 thousand 514 foreign tourists, against 407 000 451 6 million passengers who arrived last year.

In the indicated period, our country reached 612 000 282 4 million U.S. visitors, representing an increase of 15.0 percent compared to 2009 and 2.6 percent higher compared to 2008.

With regard to tourism from Canada, from January to September reached 1 million 75 000 623 Canadian, that is, an increase of 21.8 percent over last year and 31.9 in comparison with data recorded two years ago.

The third nation in importance to our country by the number of visitors is Spain, since in this period, 833 received 225 000 visitors, representing an increase of 45.6 percent compared to 2009 and 1.2 percent above that recorded in 2008.

According to the Integrated System for Operation Migration, the largest nation in Latin America for our country is Argentina, having sent 132 000 674 tourists, amount represents an increase of 44.1 percent compared with 2009 and 33.7 percent higher as reported two years ago.

The facility is giving the Federal Government in the procedures for obtaining visas allowed from January to September countries like Brazil almost doubled the number of tourists visiting our country.

During this period, Brazil received 84 000 959 walkers, 93.7 higher than the amount reported a year earlier and 45 percent higher than 2008.

In Colombia reached 53.3 percent more tourists than last year, while in Venezuela the number increased 53.3 percent.

The Real Estate-Tourist Industry Will Recover Sales in 2011 in Mexico, The Market Value of this Sector is of $3 ' 600 Billion Dollars But is Expected that by Year's and Reach $5 Billion Dollars.

The real estate-tourist industry will recover sales in 2011

07/09/2010 09:20



Mexican property market experienced stagnation in their business by having a slight increase of 1% in the first half of 2010, compared with the same period of 2009.

Juan Ignacio Rodríguez, VP of Business Development for Mexico and Central America of the RCI tourism firm, said there are signs showing that the sector already hit bottom in the crisis and begin to show a recovery.

During the launch of the 5th edition of Luxury Markets Symposium, the manager indicated that where it does exists is in investment growth, and that for this year an amount of $500 million is expected while in 2009 was less than $250 million dollars.

Due to the conditions pointed by the sector it is expected that the touristic housing supply attract a large volume of buyers during 2011 and thus initiated the revival of the acquisition of such goods.

Destinations that will attract more resources, both domestic and foreign, will be the Riviera Maya, Quintana Roo, Los Cabos, Baja California Sur, Baja California Norte and Sinaloa.

Currently, the market value of this sector is of $3,600 billion dollars, but is expected that by year's end reach $5 billion dollars.

On a possible effect on the climate of violence experienced, Ignacio Rodriguez said 'we know we have a security problem, but is very focused on non-tourist areas.

American Airlines Increased 20% Flights in Mexico

American Airlines obtains routes of Mexicana de Aviacion

25/10/2010 14:22



Between next November and February 2011 American Airlines will increased 20% flights in Mexico, to meet the demand left by the departure of Mexicana Airlines.


'We have worked very well with Mexicans authorities and airports; we found no obstacles with additional flights that will be coming on November 18th. We work on the need to meet that demand,' said to Notimex Mexico general director of the airline, Marvin Diaz.


The Director of Sales for American Airlines Mexico, Antonia Gutierrez, said that the company currently covers 14 Mexican cities to the United States and in February will add Queretaro and Veracruz.


She said that in November the company will increase the flights Mexico- Dallas, Mexico- Chicago, Mexico-Miami and also from Leon, Aguascalientes and Guadalajara.


This means, that American Airlines and American Eagle will operate at least 25 additional round trip flights, in November and December this year, and February 2011.


As for prices, Marvin said that there have been modest increases in rates in Mexico in proportion to the costs of the airline and not because Mexicana de Aviation exit the market.

The World' s Economies are Recovering, and house Markets are Recovering

GLOBAL PROPERTY GUIDE
Every year we look at property around the world, and select locations
for potential property purchases which make good investment sense.
Our criteria have little to do with the locations' aesthetic attractions.
Some would say our criteria have little to do with common sense!
That's because we narrowly focus on how much appreciation in value
a property in a certain location is likely to see, and the stream of future
earnings it will yield. These are guesses, but based on our data.
Introduction
The world looks a much happier place than 12 months ago. The world's
economies are recovering, and housing markets are recovering. Which
parts of the world are most attractive for property investment today?
The Global Property Guide looks through the options and has some
suggestions.
2. The period 1995-2010 saw something rather different in the developed world.
There is no doubt that there was enormous real growth in the developed world,
new buildings, new ideas, new products, especially in the US, a highly dynamic
economy. But the growth was also partly artificial, a boom puffed up by overspending
on housing in some countries like the US, housing, but also (the example
of Greece) by exaggerated state spending, social security budgets and other
spending, i.e., a deficit-financed boom, a dis-savings boom.
The response to the crisis has been correctly Keynesian, but in real terms this
response does not solve the fundamental problem.
What is the fundamental problem? That the developing world now produces
goods more cheaply, and often better, than the developed world.
Graduates easily get jobs in India, China, and across the fast-growing
developing word
Graduates in the UK, US, and much of the developed world cannot get jobs.
And even more so, non-graduates.
Why? Because the developed economies have increasingly been priced out of
business. Lower communication and transport costs, the web, the spread of
education, a better understanding of the economics of national competitiveness,
have all been contributory causes.
The housing boom disguised the problem, by boosting the developed economies
- but the housing boom is over. The painful process of adjustment is beginning.
GLOBAL PROPERTY GUIDE
The economic
forces moving
the world today 1. One part of the world has made enormous progress over the past
fifteen years - the leading economies of developing world (China, India,
Vietnam, and to a lesser extent Latin America). These economies have
high savings rates, low budget deficits, high current account surpluses,
viable financial systems, and very high GDP growth rates.
GLOBAL PROPERTY GUIDE
The economic
forces moving
the world today
Governments around the world have responded to the crisis by lowering
interest rates. That's pushing many property markets up again - temporarily.
But eventually, things will return to normal, when sensible interest rates return.
Conclusion 1: Don't buy in parts of the world which have just come out of
housing boom (except in the US). In countries where prices have not fallen,
they will fall (in real terms) as interest rates rise. Where prices have fallen,
no need to hurry. Housing market recoveries tend to start slowly.
The housing market is not the stock market. There is time. Yields are low so
there is little out there that's so attractive.
In our view, the US is an exception, because in some part of the US, residential
prices have fallen so much, that there is value
Conclusion 2: Buy in Latin America and other high-growth economies. The
leading emerging economies are experiencing another kind of boom - a
productivity boom, a growth boom. But property cannot be bought in China,
India or Vietnam, so that leaves only some parts of the developing world.
Many Latin American countries are seeing the sort of institutional reforms that
grew the mortgage markets in Eastern Europe, and raised valuations so much.
These reforms will encourage the growth of the mortgage markets, encouraging
the mass purchase of housing.
Conclusion 3. Buy where yields are good, preferably where high GDP growth is
to be expected.
Our recommendations
GLOBAL PROPERTY GUIDE
The economic
forces moving
the world today The rental yield is a key number. It is the amount can be earned from renting
out a property before expenses and taxes, expressed as a percentage of the
property's value. So a property worth $1 million that earns $100,000 in rent
per annum, has a gross rental yield of 10%. For a fuller treatment, see our
(explanation of residential real estate valuation parameters).
The price/rent ratio is equivalent to the P/E ratio in the stock market. It is
simply related to the yield - it is the reciprocal of the yield, i.e., 1/ the yield.
The price/rent ratio represents how many years you would need to rent out
the property, to earn back your buying cost.
House prices tend to revolve around a range. The house price cycle can be
viewed as a kind of circle, with houses prices moving from yields of (say)
4% to 11%.
VALUATION YARDSTICK FOR HOUSING MARKET
PRICE / RENT RATIO GROSS RENTAL YIELD (%)
Very undervalued
Very undervalued
Undervalued
Undervalued
Borderline undervalued
Fairly priced
Fairly priced
Borderline overvalued
Overvalued
Overvalued
Very overvalued
Very overvalued
5
6.7
8.3
10
12.5
14.2
16.7
20
25
33.3
40
50
20
15
12
10
8
7
6
5
4
3
2.5
2
Yields shifting down to 4% represent danger.
Yields rising to 10% signal opportunity.
GLOBAL PROPERTY GUIDE
The economic
forces moving
the world today The house price cycle can be viewed as a kind of circle
Low Yields
High Yields
More
expensive
Less
expensive
Where yields are low (i.e. prices are high), this will tend to mean that the
interest cost of buying a house is high, compared to the cost of renting a
house. Many potential buyers will choose to be renters, not buyers, putting
downward pressure on prices.
Where yields are high, and prices and rents are low, it will encourage people
to buy. Prices will tend tend to rise.
We look both at yields and costs. It makes little sense to make an investment
if at the outset you lose 25% of your money on transaction costs. The property
market has extraordinarily high transaction costs, asas - the result of governments
unscrupulously using property as a taxation milch-cow.
Our core role at the Global Property Guide is to do objective research, into
what these yields, and taxes, and costs are.
GLOBAL PROPERTY GUIDE
The economic
forces moving
the world today Our recommendations:
Latin America
North America
Europe
Middle East/Africa
Asia
Caribbean
Recommendations:
Peru, Panama, Brazil, Chile
(possible: Colombia)
Selected states
Turkey
(possible: Hungary)
Egypt, Jordan
(Possible: Morocco)
Malaysia
(possible: Thailand)
No recommendation
Buy in:
We suggest an opportunistic approach, as the debt crisis unfolds.
Hungary (for example) has high debt levels. Its currency could
arguably fall a victim to the debt crisis. Properties in Budapest
are already cheap, they could become very attractive. Crises
come and go - opportunities also! And we apply the same logic
to Thailand.
GLOBAL PROPERTY GUIDE
Latin
America The Global Property Guide began to recommend Latin America three years ago,
well before the US boom began to crack. We were attracted by the undervalued
currencies, cheap property, and high yields.
Three years later Latin American currencies have appreciated considerable against
the dollar (but the dollar has fallen somewhat). But to our surprise, good values are
still there.
We recommend the following locations for residential property investment:
Peru Great yields, low prices, and high GDP growth. The downside is very
high taxes. An election looms in 2011, with several undesirable candidates
possible contenders.
Panama Good yields, reasonable (but not amazing) prices, and the canal
-spending boom. New right-wing president Ricardo Martinelli is making
unusual anti-corruption moves.
Chile Good yields, low transaction costs, low prices. Very high income taxes
for non-residents, but no capital gains taxes for those who hold more than 4
years. New right-wing president unlikely to alter Chile's successful formula.
Brazil Somewhat less attractive on the numbers: higher prices, higher
transaction costs, reasonable yields (but high taxes). The key positive is that
Brazil's strong domestically-driven economic growth seems likely to continue
- the two leading candidates for the October 2010 Presidential election are
both impressive.
Latin America: Gross Rental Yields
Peru 12.13%
Panama 10.10%
Colombia 8.91%
Chile 8.87%
Ecuador 8.56%
El Salvador 8.46%
Brazil 8.09%
Uruguay 8.06%
Nicaragua 7.81%
Mexico 7.65%
Costa Rica 7.17%
Argentina 6.67%
GLOBAL PROPERTY GUIDE
Latin
America Peru
Our rating: recommended
Latin America's growth champion is Peru. Peru's economic performance is
surprising, given the country's dismal past, but it is causing Peruvians to get
richer, rapidly. New buildings are going up, yet developers are having a hard
time keeping up with the economic growth. Yields are very high - and high
yields are an important element of a 'good buy' in residential property.
Property in Lima is relatively inexpensive, as it should be, given the country's
stage of growth. However taxes are high, which significantly changes the
investment equation. Indeed, this is a problem throughout much of Latin
America. Round-trip costs (i.e., the total costs of buying and selling a property)
are however relatively low in Peru.
Quick property facts:
Rental yields of 12.5% in Lima
Low per square-metre prices at approx US$944
Round-trip costs of around 7.8%
High capital gains tax rates, high income taxes
The foundations for Peru's economic performance were laid by the government of
Alejandro Toledo (2001-2006), who instituted solid economic reforms. Alan Garcia's
return to the presidency in July 2006 caused initial alarm, as he had presided over a
high-spending leftist government during his first term as president (1985-1990).
However he was a reformed man, determined not to repeat the mistakes of his first
administration.
Fiscal rectitude became the government's No 1 priority. As the economy improved,
the international credit rating agencies upped their ratings and the cost of Peru's
debt-service dropped. In April 2008 Fitch Ratings gave Peru a BBB- rating, the only
Latin county aside from Chile and Mexico to have an investment grade rating,
allowing more pension funds and insurers to buy Peru's debt, driving spreads down
to record lows.
Meanwhile the government paid off its debt. At the start of the decade, Peru's
national debt equaled 50% of the country's gross domestic product. It now stands at
just 25%. About 40% of Peru's debt is denominated in the national currency, the
Nuevo Sol.
Peru
Panama
Brazil
Chile
Colombia
GLOBAL PROPERTY GUIDE
Latin
America
Peru positives:
The country had the fastest-growing GDP of any Latin American economy in
2009 (albeit with only 0.8% GDP growth), and is again likely to be the fastest
growing Latin economy in 2010, when it should see 5.8% growth (IMF World
Economic Outlook).
The current account and the trade account are both in healthy surplus.
Remittances are strong.
Urban unemployment fell to 8.5% in the third quarter of 2009.
Peru's stock market was up 120% in 2009, the second best performance in the
world after Brazil (145% in dollar terms). Rising stock markets tend to be good
predictors of house prices.
Finally, Garcia has made Peru the first Andean country to secure a free trade
agreement with the United States. He has also signed free trade agreements
with Canada and Singapore, and an important agreement with China.
Not that Peru is perfect. The poverty rate has fallen from 50% in 2003 to 35%
in 2009. but the bulk of the wealth is in the coastal region, and the interior is
very poor.
President García is also becoming unpopular.
Peru
Transaction Costs Who Pays?
Transfer Tax (Alcabala)
Notary Fees
Registration Fee
Estate Agent's Fees
Costs paid by buyer
Costs paid by seller
ROUNDTRIP TRANSACTION COSTS
3.00%
0.10% - 0.25%
0.30%
3.00% - 5.00%
3.40% - 3.55%
3.00% - 5.00%
6.40% - 8.55%
buyer
buyer
buyer
seller
Peru
Panama
Brazil
Chile
Colombia
GLOBAL PROPERTY GUIDE
Latin
America
A flood of decrees has opened up indigenous ancestral lands to mining and
petroleum companies, on the back of the Free Trade Treaty of the Americas
(FTAA). On June 5, the Special Operations Directorate attacked Awajun and
Wami protesters blocking a road near Bagua village. 34 people were killed in
this and other incidents, caused widespread revulsion. Ninety percent of
Peruvians said Garcia should have tried to win the tribes' support before
passing the controversial laws, according to pollster Ipsos Apoyo. Congress
ended up repealing the laws.
Garcia cannot run for re-election in the next presidential election in April 2011.
One candidate will be his ex-chief minister Yehude Simon, who resigned from the
government after the massacre.
Simon has a leftist activist past. He was arrested by President Fujimori and
sentenced to 20 years in prison as a terrorist sympathizer. After Fujimori fled
the country, and he was released, he recast himself as a moderate leftist, won
two terms as governor in Lambayeque, where he oversaw an influx of private
investment. He then joined the Garcia government, and backed Peru's free trade
pact with the U.S.
If Simon wins, Peru's future seems in good hands. Simon favours strongly increased
spending on social services, but within a free-market context. Just what the country
needs, it might seem.
Other candidates are Ollanta Humala, a nationalist party member who nearly
defeated Garcia in 2006, congresswoman Keiko Fujimori (President Alberto
Fujimori's daughter), and Luis Castañeda, Mayor of Lima.
Taxes
Tax on Rental Income (effective rate)
Monthly Income
Tax Rate
Capital gains - tax rate:
Gains earned by non-residents selling Peruvian property are taxed at a flat rate of 30%.
Residents:
Residents are taxed on their worldwide income at progressive rates, from 15% to 30%.
US$1,500
24%
US$6,000
24%
US$12,000
24%
Peru
Peru
Panama
Brazil
Chile
Colombia
GLOBAL PROPERTY GUIDE
Latin
America Panama
Our rating: recommended
The collapse of the US real estate market has affected Panama. House prices in
United States have been fallen so much, that the baby boomer cannot sell his
house, and move to Panama. Real estate prices also appear to have decreased
in Panama (though there are no reliable house price statistics, so it's hard to know
for sure).
Quick property facts:
Rental yields of 10 %
Low per square-metre prices at approx US$1520
Round-trip costs of around 8%
Capital gains tax rates are reasonable
The popular perception of Panama is as Dubai No2, with too many new
condominiums flooding the market. However, in the view of consultants
Panama Economy Insight, enormous oversupply is unlikely, because of the
low leverage of Panama's developers. Developers with ongoing construction
projects can wait. Those in the promotion stage, can delay starting construction.
However, no upturn in the real estate market of Panama is likely before US
house prices recover, perhaps in 2011.
Panama will be one of the fastest-growing economies in Latin America this year,
thanks in large part to the $5.2 billion expansion of the Panama Canal. GDP rose
12.1% in 2007, and 10.7% in 2008, though less in 2009.
Peru
Panama
Brazil
Chile
Colombia
GLOBAL PROPERTY GUIDE
Latin
America
Panama
Transaction Costs Who Pays?
Lawyer's/Notary's Fee
Transfer Fee
Agent's Fee
Costs paid by buyer
Costs paid by seller
ROUNDTRIP TRANSACTION COSTS
2.00%
2.00%
3.00% - 5.00%
2.00%
5.00% - 7.00%
7.00% - 9.00%
buyer
seller
seller
Panama's rapid GDP growth, good yields, lowish taxes, reasonably priced real
estate, and reasonable round-trip costs make it hard not to put Panama on our
list of recommended locations buying property, despite its history of corrupt
government.
The government deficit is low - at 2.3% of GDP in 2009. Standard & Poor
recently upped its Panama debt risk rating to BB+ with positive perspective.
In May 2009 Ricardo Martinelli, 57, a free-market enthusiast and self-made
millionaire, became the first presidential candidate in Panama's modern history
to win an absolute majority. He has no ties to the traditional parties, marking a
break with the dominant pattern of Panamanian politics where the ruling centre
-left Democratic Revolutionary Party (PRD) and the right-of-centre Panameñista
Party (PP) have alternated in power for decades.
Peru
Panama
Brazil
Chile
Colombia
GLOBAL PROPERTY GUIDE
Latin
America
He arrested a number of past government officials for corruption, including former
President Ernesto Pérez Balladares (under house arrest), who he had just defeated.
Actually in prison are former Education Ministers Belgis Castro, and Salvador
Rodriguez.
"There's a general feeling of "it's about time" - even among people who you would
not normally expect to support these kinds of actions," says blogger Don Winner.
"I spent a considerable amount of time polling people with the following question
- 'Ernesto Perez Balladares - Persecution or Justice?' Only the most die-hard PRD
faithful told me they really think Perez Balladares is being hounded for purely
political reasons, and that in fact there's nothing to the charges he faces.
It is too early to tell whether Martinelli is a good thing, or a case of 'same old story'.
But continued corruption or not, it is hard to argue with good yields, low taxes and
low costs.
Taxes
Tax on Rental Income (effective rate):
Rental income is subject taxation at progressive rates of up to 27% and to VAT at 5%.
Capital gains - tax rate:
Gains realized from transactions not related to business activities are taxed at 10%.
Residents:
Resident are taxed on their Panamian-sourced income only, at progressive rates.
Panama
Peru
Panama
Brazil
Chile
Colombia
GLOBAL PROPERTY GUIDE
Latin
America Brazil
Our rating: recommended
Euphoria about Brazil's emergence as a growth powerhouse, member of the
'BRICS' quadrimvirate accounting for half global economic growth, has been
accentuated by good performance in the recent global crisis.
Quick property facts:
Yields around 8% in Sao Paolo
Prices per square metre of US$2,277 in Sao Paolo
Round-trip costs higher than in some other places, at 11.50%
High capital gains tax rates, high income taxes
So, on the face of it, less attractive numbers. Yet the enthusiasm for Brazil is
enormous, and the economy has performed outstandingly. Brazil is an unusually
closed economy, with a small import/export sector. Yet it is so big, so populous,
that it can grow on its own steam.
President Lula de Silva is getting much of the credit for Brazi's rapid growth. His
election in 2002 brought fears of a socialist agenda. Instead, he introduced a
pragmatic approach that combines the free market with social support for the
poor and workers.
Under Lula, the economy grew by an average of 4.3% from 2004 to 2006, before
growing by more than 5% in 2007 and 2008.
Peru
Panama
Brazil
Chile
Colombia
GLOBAL PROPERTY GUIDE
Latin
America
Lula's pro-market reforms have greatly helped expand Brazil's mortgage market.
The first big break was the government's approval of fiduciary alienation, whereby
the buyer becomes the owner of the property only after it has been fully paid. The
lending institution owns the property, while the loan is being repaid.
As a result, housing loan terms have become more favorable to borrowers:
Loan terms have lengthened to 30 years, from 10 to 12 years.
Interest rates on housing loans offered by banks have fallen to
13% to 14%, from around 16% in 2005.
Government-owned housing institutions now offer loans at 12%
interest, payable over 30 years.
According to the World Economic Forum, Brazil was the top country in upward
evolution of competitiveness in 2009, gaining eight positions among other countries,
overcoming Russia for the first time, and partially closing the competitiveness gap
with India and China among the BRIC economies.
Brazil
Transaction Costs Who Pays?
Transfer Tax
Notary’s Fees
Agent’s Fees
Costs paid by buyer
Costs paid by seller
ROUNDTRIP TRANSACTION COSTS
3%
2% – 3%
6%
6.59%
5.04%
11.63%
buyer
buyer
seller
Peru
Panama
Brazil
Chile
Colombia
There are caveats:
Taxes are high, the state sector is large and inefficient, and
state spending does not efficiently direct money to the poor
Investment is relatively low
Interest rates are relatively high, though falling
Corruption is high
Brazil's growth at around 5% per annum therefore does not approach that of the
'champion economies' of China, India, and Vietnam.
But improvement continues. In September 2009, Moody's promoted Brazil to
investment grade.
The highly popular Lula is barred from running in the national presidential elections
in October 2010, and has shown no interest in changing the law.
He has backed his chief of staff Dilma Rousseff as the Worker's Party's candidate
(WP), despite her recent chemotherapy treatment for cancer. She will face Sao
Paulo state Governor Jose Serra, of the Brazilian Social Democrat party (PSDB), who
was Cardoso's health minister, and another supporter of government intervention
(Brazil currently lacks any charismatic leadership on the pro-business right).
From the investor's perspective, both choices seem highly satisfactory. For the
moment the country is in good hands.
GLOBAL PROPERTY GUIDE
Latin
America Taxes
Tax on Rental Income (effective rate):
Monthly Income
Tax Rate
Capital gains - tax rate:
Capital gains tax is levied at a flat rate of 15%.
Residents:
Residents are taxed on their worldwide income. Income tax is levied at progressive
rates, up to 27.5%.
US$1,500
15%
US$6,000
15%
US$12,000
15%
Brazil
Peru
Panama
Brazil
Chile
Colombia
GLOBAL PROPERTY GUIDE
Latin
America Chile
Our rating: recommended
Chile isn't perhaps an exciting property investment. But prices are low, returns
are good, and for a long-term holder there's no capital gains taxation, though
income taxes are very high.
Quick property facts:
Chile's capital Santiago has good yields, at 8.9%
Prices approximately US$1,204 per square metre in prime Santiago
Round trip costs, i.e., the total costs of buying and selling a property,
are low, at 6.1%
Taxes are high - 35% income taxes, but 0% capital gains taxes on long
-term holders. Leasing of real estate is also subject to VAT at 18%.
The Decreto con Fuerza de Ley 2 (DFL-2) encourages affordable
housing of less than 140 square metres (sq. m). DFL-2 properties
are exempt from income tax, and enjoy 50% off the Real Estate Tax
for corresponding periods, according to land area. However, this tax
benefit is not available to non-resident owners, as non-residents
earning Chilean-sourced income are subject to a final withholding
tax at the general rate of 35%.
Chile has elected a new conservative president, Sebastian Piñera, of the centre
-right coalition. In March 2010 he replaced the highly popular Michelle Bachele
of the left-leaning Christian Democratic Party (PDC), Chile's first woman president.
No sharp policy changes are expected under Piñera, as he has promised to continue
the government's social programs. He has to deal with the legacy of the earthquake,
which caused substantial damage in Chile.
Property prices have remained relatively stable during the recent global crisis - and
rose, agents say, during the last quarter of 2009. This is difficult to verify, however,
due to the lack of official or unofficial house price data.
Peru
Panama
Brazil
Chile
Colombia
GLOBAL PROPERTY GUIDE
Latin
America
In December 2009, Chile was the first South American country to join the
exclusive "rich man's club" of the Organization for Economic Cooperation
and Development (OECD).
OECD membership serves as a crowning glory to the accomplishments of
the coalition led by centre-left Christian Democrat Party (PDC). After winning
the elections in 1990, the PDC continued the economic reforms begun by
Pinochet dictatorship, but with a social orientation, combining economic
openness, market reform and social safety-nets. Chile experienced rapid
economic growth, lower unemployment and the expansion of the middle
-class.
In the 2010 elections, the PDC became victims of their own success in growing
the huge middle-class, which voted for billionaire Piñera.
Chile
Transaction Costs Who Pays?
Lawyer’s Fees
Stamp Duty
Transfer Tax A56
Agents Fees
Costs paid by buyer
Costs paid by seller
ROUNDTRIP TRANSACTION COSTS
1% - 2.5%
0.2% - 0.3%
0.10%
2%
2%
3.3% - 4.9%
2%
5.3% - 6.9%
buyer
buyer
buyer
buyer
seller
Peru
Panama
Brazil
Chile
Colombia
GLOBAL PROPERTY GUIDE
Latin
America
A housing shortage still exists in Chile, but has been reduced significantly
through a very successful housing policy, while the owner-occupancy rate
has been raised. The Ministry of Housing and Planning (Ministerio de
Vivienda y Urbanismo or MINVU) was created in the 1970s, and it has
dominated the housing sector since. It is the country's largest real estate
firm, and its second largest mortgage bank.
The special law Decreto con Fuerza de Ley 2 (DFL-2), which subsidises housing
of less than 140 square metres (sq. m) may explain the slightly lower yields in
Santiago on 60 sq. mt. and 120 sq. mt. apartments, which is contrary to the usual
rule that smaller apartments have higher yields.
Chile's GDP contracted by around 1.8% in 2009, after growing by 3.2% in 2008
and rising an average of 5.2% from 2004 to 2007. Economic growth is expected
to resume in 2010 with a 4% expansion.
Chile is a well-ordered country, with a historically high growth rate. It's unlikely
to go broke, or have a crisis. You'll be safe here, which is a real virtue in these
uncertain times.
Taxes
Tax on Rental Income (effective rate):
Non-residents earning Chilean income are subject to VAT, which is levied at 35% on
gross income.
Rental Income is subject to FCT at a flat rate of 17%. FCT and property taxes are
credited against the taxpayer’s VAT liability.
Leasing of real estate is subject to VAT at 19%.
Capital gains - tax rate:
Gains are taxed at the standard FCT, if immovable property is sold within the first year,
or if an apartment is sold within the first four years. Otherwise, 0%
Residents:
Residents are taxed on their worldwide income. Income tax is levied at progressive
rates, up to 27.5%.
Chile
Peru
Panama
Brazil
Chile
Colombia
GLOBAL PROPERTY GUIDE
Latin
America Colombia
Our rating: possible
House prices have been climbing in Colombia since 2004. Yet despite the price
rises, yields on properties in Bogota remain attractive, at around 9%.
Once a by-word for kidnapping, narco-terrorism, and an ongoing Marxist
rebellion, led by the Revolutionary Armed Forces of Colombia (FARC),
Colombia now has competent and technocratic government, restrained
budgetary policies, and a pro-market attitude.
The star of the Colombian economic success story is president Álvaro Uribe,
whose anti-terrorist campaign has borne fruit and whose economic policies
have been successful. Progress since Uribe took power in 2002 has been little
short of astonishing.
In his two terms since 2002, Uribe has made Colombia less violent, by expanding
the security forces by half. The FARC has shrunk to less than half its 2001 peak
of 20,000 fighters.
Quick property facts:
Colombia's capital Bogota has good yields, at 8.9%
Prices approximately US$1.688 per square metre in prime
Bogota.
Round trip costs, i.e., the total costs of buying and selling a
property, are reasonable, at 9.6%
Taxes are high - 28% income taxes, and 30% capital gains
taxes.
Peru
Panama
Brazil
Chile
Colombia
GLOBAL PROPERTY GUIDE
Latin
America
Peru
Panama
Brazil
Chile
Colombia
Private investment has returned. So too has foreign direct investment (FDI),
which has risen from 2.50% of GDP in 2000, to 5.20% of GDP in 2007.
Unemployment has been falling.
Growth took a small hit in 2009 (-0.2 % GDP). The Colombian peso dipped.
The country's access to the credit markets is however good, external debt
is low (at 20% of GDP), reserves are comfortable, inflation is low
(2% in 2009), and there are no systemic bank solvency problems.
Some of the political elite, however, still have links to the gangster elements
in the Colombian military and society, and Uribe's enthusiastic alignment
with US policy in Iraq disillusioned many liberal-thinking young.
GLOBAL PROPERTY GUIDE
Latin
America
Taxes
Tax on Rental Income (effective rate):
Monthly Income
Tax Rate
Capital gains - tax rate:
The capital gains tax for non-residents is at a flat rate of 33%.
Residents:
Residents are taxed on their worldwide income at progressive rates, from 19% to 33%.
US$1,500
27.70%
US$6,000
27.70%
US$12,000
27.70%
Colombia
Peru
Panama
Brazil
Chile
Colombia
Credible claims emerged in 2008-9 that the army murdered up to 1,800
civilians and passed them off as dead rebels (a practice dubbed "false
positives"). Uribe sacked 27 officers, including three generals, following
these reports. Meanwhile, just before Christmas, the FARC kidnapped
and murdered the governor of Caquetá department.
Uribe cannot stand for a 4th term. The Uribista candidate is former
defense minister Juan Manuel Santos, who was initially generally
expected to win the May 30 presidential first round. However Uribe's
enormous achievements are by now largely taken for granted, and
Santos suffers from his association-by-proximity to the 'false positives'
scandal.
This may explain why recently a nationalist-socialist candidate, Antanas
Mockus, former mayor of Bogota, made a strong showing and now
stands equal in the polls with Santos. Mockus has expressed his
admiration for 'Venezuela's Hugo Chavez' but this does not seem to alarm
much of the electorate. He is generally admired for his honesty and his
achievements as mayor of Bogota
Colombia is an attractive country - with obvious downsides.
GLOBAL PROPERTY GUIDE
Europe It is too early in the cycle to buy in most of Europe, even in countries where
substantial corrections have taken place. Much of Europe is exposed to the
'developed country debt crisis', which is just beginning.
However, we place our bets on one country where long-term growth prospects
seem reasonable - Turkey.
We also place as a 'possible', with reservations, Hungary.
We suggest an opportunistic interest in Hungary. Hungary has a high budget
deficit, and high debt levels. The xenophobically conservative and policy-less
Fidesz party won the elections of April 2010". Despite these serious issues,
property in Budapest is inexpensive, and a little currency depreciation could
make it very attractive.
Europe: Gross Rental Yields
Macedonia
Ukraine
Hungary
Poland
Belgium
Netherlands
Romania
Turkey
Croatia
Germany
Italy
Slovenia
Slovakia
Finland
Austria
Denmark
Bulgaria
Switzerland
Latvia
Lithuania
Czech Republic
France
Spain
Luxembourg
Portugal
UK
Russia
Estonia
Cyprus
Malta
Greece
Andorra
Monaco
9.91%
9.09%
8.11%
5.83%
5.78%
5.61%
5.50%
5.48%
5.22%
5.12%
5.04%
4.93%
4.70%
4.42%
4.40%
4.36%
4.16%
4.11%
4.04%
4.03%
3.89%
3.85%
3.81%
3.63%
3.63%
3.48%
3.45%
3.29%
3.21%
2.94%
2.48%
2.36%
1.48%
GLOBAL PROPERTY GUIDE
Europe A short note about some attractive countries which aren't on our list:
Poland. A country which has emerged triumphantly from the crisis,
with positive growth. Yields are quite good, transaction costs are low,
there are no capital gains taxes, but residential prices are, we judge,
too high at approximately €3,348 per sq. mt
Estonia. The Russians are buying in Estonia, betting on a recovery.
Estonia has responded well to the crisis, cutting wages, cutting the
deficit. It will probably adopt the Euro in 2011. For our taste
yields in Estonia are too low at 3.29%, prices too high at €2,386
per sq. mt., and taxes, too, are high.
Plus, the opposition may well win the 2011 parliamentary election
- not good news.
Belgium. Brussels always seems attractive, with good yields, low
taxes, and a captive and ever-growing reservoir of foreign tenants.
The downside is the high transaction costs, with round-trip costs of
17% of the purchase value. Too high!
GLOBAL PROPERTY GUIDE
Europe Turkey
Our rating: recommended
Turkey wouldn't normally make it into our 'recommended' list. Yields are
in medium-range - 5.5% - i.e., below what we normally consider optimal.
But Istanbul has low per square metre prices, reasonable round-trip costs,
and a reasonable tax situation, and the country's attractively young population,
plus its growth prospects, and its increasingly core role in the near-East, make
it 'recommendable'.
Quick property facts:
Yields of 5.5% in central Istanbul
Low per square-metre prices at €1,390
Round-trip costs of around 10%
Low property income tax rates, no long-term capital gains tax
Frequent earthquakes - certainly, a negative.
Turkey was severely affected by the economic crisis (although the process of
recovery has already begun). After six years of uninterrupted growth of around
7% annually, GDP growth fell by 6.5% in 2009.
The economy was "too reliant on the industries that got hit the worst, viz,
household appliances and cars," said Tevfik Aksoy, an economist at Morgan S
tanley in London. "Turkey didn't have a basket of sectors that it could diversify
among."
Turkey
Hungary
GLOBAL PROPERTY GUIDE
Europe
Turkey
Transaction Costs Who Pays?
Registration and notary fees
Title deed charge
Agent's commission
Stamp Duty
Costs paid by buyer
Costs paid by seller
ROUNDTRIP TRANSACTION COSTS
0.10% - 1.0%
1.50%
1.50%
3%
3%
0.75%
4.60% - 5.50%
5.25%
9.85% - 10.75%
buyer
buyer
seller
buyer
seller
seller
As job losses mounted, Turks began to lampoon Prime Minister Recep Tayyip
Erdogan's often-expressed optimism. A popular Turkish song on YouTube ended
with the mocking refrain, "Thank the Lord, it barely touched us," echoing
Erdogan's over-optimistic economic predictions.
Yet under Erdogan's Islamist-based Justice and Development (AK) Party
government, elected by a landslide in November 2002 (then reelected in
July 2007), much economic reform has been achieved. Services have
been improved, freedom of speech has increased, and military influence
has been restricted. The economy expanded by 5.3% in 2003, 9.4% in
2004, 8.4% in 2005, and 6.9% in 2006, before slowing to 4.5% in 2007,
and 1.1% in 2008.
Turkey
Hungary
GLOBAL PROPERTY GUIDE
Europe
Turkey has a strong banking system and a large upside potential, due partly
to demographics and strong tourism growth. The OECD, in its recent forward
look at OECD member countries' likely future growth, foresees GDP growth
of 6.7% p.a. for Turkey during 2011-2017 - the highest among all OECD countries.
The rebound is now on. Moody's has upgraded Turkey's bond rating to Ba2
from Ba3. Fitch Ratings has also upgraded its longer-term currency ratings,
citing the strength of the Turkish banking sector.
"If the real interest rates continue to be around 4 to 5 percent, then Turkey
has a huge growth potential and it can be the next Brazil," says Türker
Hamzaoglu, a Merrill Lynch economist. "Brazil saw huge growth after the
2001 crisis. Maybe Turkey does not have valuable underground resources,
but instead of this, it has low real interest rates."
Taxes
Tax on Rental Income (effective rate):
Monthly Income
Tax Rate
Capital gains - tax rate:
Gains are tax-exempt if the holding period is 5+ years (4 if the property was acquired
before 01 January 2007).
Residents:
Residents are taxed on their worldwide income.
€ 1,500
14.60%
€ 6,000
21.70%
€ 12,000
24.80%
Turkey
Turkey
Hungary
Yet the Hungarian economy is a worry. Hungary's GDP is believed to have
contracted by -6.7% in 2009 and is likely to contract again in 2010.
Hungary has long-term economic problems.
A large national debt, at 80% of GDP. Moody's long-term debt
rating for Hungary is a low Baa1.
An over-spending government, with excessive health and pension obligations.
Uncompetitive industry.
For a decade the political class avoided facing these issues. "I almost perished
because I had to pretend for 18 months that we were governing. Instead, we lied
morning, noon and night. I do not want to carry on with this," said previous Prime
Minister Ferenc Gyurcsany in a famous speech in June 2006.
With this, the country admitted to a fiscal deficit way beyond what had previously
been talked about, and entered a financial crisis which has now lasted three and a
half years. However a crisis does not mean a solution, and two "austerity" measure
packages (2006, 2009) have had little effect in reducing the deficit.
GLOBAL PROPERTY GUIDE
Europe Hungary
Our rating: possible
Hungary's position on our 'recommended' list is due to reasonably low prices
of property in Budapest (which we track), and several other positive factors.
However as an economy, Hungary is a risky bet, of which more below.
Quick property facts:
Budapest's rental yields are around 8%
Budapest has square metre prices of around €1,683
The total cost of buying and selling a property
(round-trip costs) is 11%, i.e., not unreasonable.
Hungary has reasonable capital gains taxes and effective
income taxes, at 19% and 11%, respectively, according to
our calculations.
Turkey
Hungary
GLOBAL PROPERTY GUIDE
Europe
Hungary
Transaction Costs Who Pays?
Transfer Duty
Legal Fees
Registration Fees
Real estate Agent's Fee
Costs paid by buyer
Costs paid by seller
ROUNDTRIP TRANSACTION COSTS
2% - 6%
0.5% - 1.5% (+20% VAT)
0.01% - 0.05%
3% - 5% (+20% VAT)
2.61% - 7.85%
3.6% - 6%
6.21% - 13.85%
buyer
buyer
buyer
seller
The positives:
Significant current account improvement recently
The OECD forecasts3 % GDP growth in 2011, and 4.3% growth 2011-2017
(To repeat) Properties are relatively low cost, and have high yields
The negatives:
Some danger of currency collapse. Over 85% of mortgages in Hungary are
non-forint denominated (mainly in Swiss Francs), so if the forint were
devalued, there could be financial chaos.
The 2010 parliamentary elections saw the landslide the victory of Fidesz,
a right-wing populist party with a muddled agenda, which is somewhat
anti-capitalist and anti-foreign. However in his first remarks after the 2010
election results were declared, the new prime minister Viktor Orban drew
a clear line between Fidesz and the far-right racist Jobbik party, which entered
parliament for the first time.
Fidesz has pledged to cut some taxes and curb tax evasion and reduce state
bureaucracy, and immediately began pruning the number of ministries to just eight
- leaving Orban with the smallest cabinet in the post-communist era. The governent’s
belief seems to be that reduced state spending is reconciled with economic growth
by easy money, and it has already picked a quarrel with the Central Bank governor
Taxes
Tax on Rental Income (effective rate):
Monthly Income
Tax Rate
Capital gains - tax rate:
Net capital gains are taxed at a flat rate of 25%
Residents:
Are taxed at progressive rates on their aggregate income, from 18% to 36%.
€ 1,500
18.70%
€ 6,000
29.60%
€ 12,000
32.80%
Hungary
Turkey
Hungary
Mongolia: the impact of the minerals boom
Visitors to Ulaanbaatar are often amazed by the city's vibrancy and dynamism
- this is a town on the go. Once a sleepy outpost of the Soviet Empire inhabited
by bureaucrats and a resentful and largely nomadic local population, the character
of Ulanbaataar is changing rapidly, as bars, restaurants, hotels and modern shops
spring up, and affluent locals show off their new wealth, filling the streets with
Hummers and Mercedes Benzes.
Mongolia now has the excitement of the frontier, the dynamism of a boomtown,
combined with political openness. It is one of the fastest-growing Asian economies,
indeed the IMF estimates that Mongolia will be the fourth-fastest-growing economy
in the world, in real terms, over the next five years. Mongolia's GDP growth was
10.6% in 2004, 5.5% in 2005, 8.6% in 2006, and 9% in 2007.
This explosion of wealth in Ulaanbataar has come largely because of exploitation
of Mongolia's newfound mineral resources. The richness of the possibilities is only
now becoming apparent. Following the discovery of gold and large mineral deposits,
and juxtaposed with high copper prices and a growing world shortage of key minerals,
Mongolia is the beneficiary of a simple fact: the faster the world grows, the more it
needs minerals, and the more it looks to Mongolia.
Foreign Direct Investment (FDI) has grown at an explosive rate. FDI is up from
US$25m in 1997, to no less than US$344m in 2006. A large proportion of Mongolia's
FDI has been channeled into the construction and mining industries, which are
currently experiencing rapid growth.
The world's leading mining companies are setting up in Mongolia, and their
executives demand western-level amenities. An estimated 50,000 expatriates will
be relocating to Mongolia over the coming 5 years.
For more advice, please contact:
Asia Pacific Investment Partners
www.apipcorp.com
(+852) 8121 9947
olympic@apipcorp.com
Sponsored by:
FDI is pouring in from companies like Ivanhoe and Rio Tinto. The most important
recent development has been the government signature of the landmark Oyu Tolgoi
agreement, which opens up the world's largest untapped copper and gold reserves
to foreign investment, making the terms clear and transparent. The Oyu Tolgoi mine
is estimated to have over $500 billion worth of copper and gold reserves. New
investments in Oyu Tolgoi, coupled with the revenues from mining its deposits,
are expected to push Mongolia's economy into rapid expansion.
Gold and copper are only the beginning of the mining story. Mongolia is estimated
to have coal reserves of 125 billion metric tons, a significant portion of which is in
the Tavan Tolgoi mine in the southern Gobi (source: Altan San Securities). China
buys up to 22 million tons of coal per month, so Mongolia has a major long-term
customer on its doorstep.
It is important to note that Mongolia has a quite different political and business
environment from the rest of Central Asia. Unlike some of its neighbors, Mongolia
has a genuinely competitive political system, with a free press and open elections.
According to the World Bank, Mongolia ranks in the top third of countries in terms
of ease of doing business - above Spain and Poland, and much higher than any of
the BRIC countries. The risks, therefore, are much reduced. The country's economic
growth is built on firm political foundations, there being a national consensus on
objectives.
An obvious way that foreign investors who are not affiliated with the mining/
commodities sector can take advantage of the high earnings and capital gains in
Mongolia is through the property sector. A combination of factors makes it an
ideal time to invest in Mongolian luxury real estate. First, after a pause coinciding
with the global economic crisis, Ulanbaataar is under-built. Second, Mongolia's
ongoing boom is producing an increasingly affluent upper class that demands
luxury. Finally, with over half the capital still living in traditional felt housing and
even more in soviet block-housing, there simply isn't enough quality real estate
to meet supply.
For more advice, please contact:
Asia Pacific Investment Partners
www.apipcorp.com
(+852) 8121 9947
olympic@apipcorp.com
Sponsored by:
For more advice, please contact:
Asia Pacific Investment Partners
www.apipcorp.com
(+852) 8121 9947
olympic@apipcorp.com
Good quality property has high yields and has shown outstanding capital gains.
The quality of local building sometimes leaves much to be desired, however, so
it is important to select a high-quality developer.
Happily, an international-standard developer recognized to have the highest
construction standards and which has longest experience of the Mongolian
market is now launching a new high-end mixed-use development, the Olympic
Residence. Located in the heart of Ulaanbaatar, the Olympic Residence will
redefine the levels of luxury for the city's residents.
The Olympic Residence is the fifth mixed-use development from Mongolian
Properties. It features 116 luxury apartments and penthouses, and three floors
of retail units. A Scandinavian-influenced architectural design gives the Olympic
Residence clean lines and efficient use of space, with views surpassing any other
development in the city.
The location of the Olympic Residence is arguably one of the best in Ulaanbaatar,
sandwiched between two major hotels (the Hilton Hotel and the Shangri La Hotel
- both under construction) in the heart of the embassy district, overlooking the
Central Park. The area is the town's up-and-coming high-end area, centrally
located near the parliament building, and 400 meters away from the capital's
first Louis Vuitton store.
Visit the rich information available about the Olympic Residence and about
Mongolia on the Mongolian Properties' website.
Sponsored by:
Indonesia 12.34%
Philippines 8.98%
Malaysia 8.76%
Thailand 7.99%
Japan 5.69%
Cambodia 4.33%
Singapore 3.79%
India 3.59%
China 3.55%
Hong Kong 3.12%
Taiwan 2.68%
GLOBAL PROPERTY GUIDE
Asia Asia is not a particularly easy continent for foreigners to buy property in.
A legacy of post-colonial laws mean that many Asian countries restrict
purchases by foreigners, particularly as regards buying land.
Both Hong Kong and Singapore are however completely open, anyone can
buy here. But their residential markets are very highly priced (approximately
US$15,000 per sq. mt. in Hong Kong, and US$11,300 per sq. mt. for Singapore).
Properties in both cities have poor rental yields, at 3.8% for high-end properties
in Singapore, and 3.1% for Hong Kong. Such prices cannot, in the nature of
things, have very much upside potential.
Asia: Gross Rental Yields
Looking at Asia does not yield a plethora of investment ideas, because each
choice has a downside, either in terms of yields, or in terms of costs and taxes.
With a slightly sinking feeling, we make the following recommendations:
Malaysia. Kuala Lumpur is relatively low cost, has good yields, and low
transaction costs. Capital gains taxes are low but income taxes are high.
The worry is high capital flight, which indicates that something is amiss in
Malaysia's economic environment.
Possibles:
Thailand. Apartment owners earn good yields, and there are low transaction
costs. Costs are on the high side, but not unreasonable. Taxes are a little high.
Disadvantages of some apparently attractive locations in Asia:
Jakarta, Indonesia has superb yields, however it has wholly unacceptable
round-trip costs (26%), and quite high rental income taxes.
Manila, Philippines. Good yields, but high round-trip costs (18%) and high
income taxes if you are a non-resident foreigner playing by the rules (25%).
Petty bureaucracy irritating, too.
GLOBAL PROPERTY GUIDE
Asia Malaysia
Our rating: recommended
Malaysia has long been a picture of macro-economic stability and strong
GDP growth over many years, despite submerged ethnic tensions. This strong
growth is likely to continue.
Quick property facts:
Good rental yields in Kuala Lumpur, at around 8.8%.
Prices around US$1,424 per sq.mt.
Low round-trip buy-sell costs at around 5.5%
No capital gains taxes low, at 5.2%
However, effective income tax rates are high, at around 22.42%
Malaysia is a relatively small economy, and exports represent as much as 120%
of GDP, so the global slump took a heavy toll. GDP fell by -3.5% (IMF estimate)
during 2009. Growth in 2010 is likely to be positive, variously estimated at 2.5%
(IMF), 4.5% (ADB), or 3.7% (Malaysian Institute of Economic Research)
Malaysia chugs along with GDP growth of around 5.5% per annum, except in
major global or regional downturns. Budget deficits are small, debt is low, the
economy is a picture of stability, though central government debt as a percentage
of GDP rose to 48% in June, leading to the country's first debt downgrade since the
1997-98 Asian financial crisis. The banking system seems sound, and international
reserves are at a healthy nine months of retained imports
One concern is falling foreign investment flows. In 2008 Malaysia experienced a
US$6 billion net outflow of foreign direct investment. Capital outflows continued
in IH 2009, with direct investments outflows exceeding inflows by 4.9 billion
ringgit (US$1.4 billion) in IH 2009. Portfolio flows IH were negative by 22.1 billion
ringgit (US$6.1 billion); other investments negative by 27 billion ringgit
.(US$7.9 billion).
Malaysia
Thailand
GLOBAL PROPERTY GUIDE
Asia
Racial tensions are always a worry. In April 2009 Najib Razak replaced Abdullah
Badawi as prime minister, making promising noises about liberal change. However
he then criticized a Malaysian High Court decision giving the Catholic Herald
newspaper the right to use the word Allah to represent God in its Malay-language
edition. In the ensuing reaction at least 11 churches and a Sikh temple were fire
-bombed. The perception was that UMNO had fomented the unrest to re-assert
its Malay and Islamic identity, having won only 51% of Malay votes in the 2008
national election.
Yet in Malaysia, this sort of simmering tension is business as usual. Meanwhile
ex-prime minister Anwar Ibrahim is on trial for sodomy - another sign of business
as usual.
In terms of property investment, Malaysia has obvious attractions. Whether the
capital outflows are a significant sign of economic trouble ahead, is not yet clear.
On balance, we would tend to bet that the Malaysian government will get things
together, reduce the disincentives to business, and deliver higher economic growth.
Malaysia
Transaction Costs Who Pays?
Stamp Duty
Lawyer/Solicitor's Fees
Other Fees
Real Estate Agent's Fees
Costs paid by buyer
Costs paid by seller
ROUNDTRIP TRANSACTION COSTS
1% - 3%
0.4% - 1%
MYR180 (US$49)
2% - 2.75%
1.40% - 4.00%
2.00% - 2.75%
3.40% - 6.75%
buyer
buyer
buyer
seller
Taxes
Tax on Rental Income (effective rate):
Monthly Income
Tax Rate
Capital gains - tax rate:
There is no tax on income made from selling property
Residents:
Residents are taxed only on their Malaysian-sourced income at progressive rates,
from 1% to 28%.
US$1,500
22.40%
US$6,000
25.10%
Malaysia
Malaysia
Thailand
GLOBAL PROPERTY GUIDE
Asia Thailand
Our rating: possible
The Thai property market has been seriously affected by political turmoil during
the last couple of years. Residential property prices in Thailand dropped further
in 2009, and can be expected to further drop in 2010, after the recent riots.
House prices in Thailand reached their highest point in 1992 (adjusted for inflation),
and have not done well since then, in real terms. Real house prices in Thailand as
of Q2 2009 were 34.2% below their 1992 peak - not a great record.
Quick property facts:
Rental yields are good in Bangkok, at 8%
Prices per square metre, at US$2,450 are a little high
Transaction costs (round-trip) are reasonable, at around 7%
Taxes are quite high
Tourists and investors have been shying away from Thailand due to persistent
political uncertainty surrounding the conflict between Prime Minister Thaksin
Shinawatra and has peasant and poor supporters (the 'red shirts') and the
traditional political elite, represented by the Royal Family and the Democrats
and their political allies. Since the restoration of democracy in December 2007,
political tension between pro and anti-Thaksin group has worsened, culminating
in the long street demonstrations of 2010, when the 'redshirts' occupied large
areas of Bangkok.
A significant number of demonstrators were killed when the army attempted
to clear the area, and at time of writing it was not obvious whether the disorder
would die down..
.
Malaysia
Thailand
The rural majority, who benefited immensely from Thaksin's pro-poor
programs, remain loyal to him. This led to electoral victories for Thaksin's
allies in Parliament, which the traditional elite were unable to tolerate,
resulting in a military coup and then the restoration of democracy. Anti
-Thaksin groups include many students, blue-collar workers, the urban elite,
royalists and military-connected elements, who disliked the corruption and
the populist programs of Thaksin and his cronies.
Thailand is attractive largely because, although this sort of turmoil has
been seen many times before, such turmoil has a history of not slowing
Thailand's development.
We would put Thailand in the 'Lebanon' category, i.e., in the group of
countries where the upward momentum of the property market has been,
and will be, delayed by civil disorder. Yet Thailand remains extremely
attractive as a regional manufacturing base, attractive to foreigners as a
ourist location, and as a convenient regional business centre.
There is little doubt that the uncertainty is hitting the economy. However
when the civil disorder in fundamentally competitive countries abates, their
property markets tend to do very well.
Thailand is not yet 'there', but the situation bears watching.
-
-
IJordan 8.51%
Egypt 7.04%
Morocco 6.49%
UAE 5.37%
Israel 5.06%
Lebanon 4.18%
GLOBAL PROPERTY GUIDE
The Middle East We have been watching the Lebanese property boom with interest. Over the last
five years, interrupted by a destructive Israeli bombing attack and an outbreak of
internal fighting, residential property in Lebanon has experienced a boom.
In the second quarter of 2009, the average residential property price in the Beirut
Central District (BCD) soared 40.7% That this should happen in a country with such
tensions and facing such dangers, seems surprising.
Lebanon is now overvalued, in our opinion. But the boom illustrates the importance
of valuation, above other factors. Lebanese property was undervalued - so when peace
returned, it rapidly appreciated. Are there other undervalued Arab capitals?
Middle East: Gross Rental Yields
In our opinion, there are two undervalued Arab capitals. Both Egypt and Jordan caught the
ill-wind of the international crisis last year.
High-end property in Cairo was hit particularly hard. However yields are good, especially in the
expatriate area of Maadi. A recent Jones Lang LaSalle report pointed out that Cairo is the natural
hub for the Middle East, in terms of costs, communications, and (for all its chaos and pollution)
livability.
Amman's property market players seem in utter despair. However Jordan is very attractive in
terms of square metre costs, yields, and taxes - though transaction costs are high.
A third possible investment destination is Morocco, which is attracting enormous tourist interest
for its beaches and the charm of its historic cities.
GLOBAL PROPERTY GUIDE
The Middle East
Despite Egypt's obvious pluses (see above), investment here is a bet on the end-game.
President Hosni Mubarak is an ageing and increasingly unpopular dictator. There is
resentment at the regime's collusion with the US. The covert plan to put in his son, who i
s already in charge of the ruling National Democratic Party (NDP)'s powerful Policies
Secretariat, as his father's successor, is unacceptable to most people.
Egypt
Our rating: recommended
For foreigners, Egypt is not the easiest place to buy property, which may require
some legal fenangling. But the yields are good, the per square metre prices are
low, and the taxes are low.
Quick property facts:
Rental yields of 7%
Prices low, at US$856 per square metre
Round trip costs high at 12.1%
Capital gains taxes zero, rental income taxes maximum 10%
Egypt
Transaction Costs Who Pays?
Registration Fee
Legal Fees
Real Estate Agent's Fee
Transfer Tax
Capital Gains Tax
Costs paid by buyer
Costs paid by seller
ROUNDTRIP TRANSACTION COSTS
EGP500 - EGP2,000
3%
2.75% - 3.30%
2.50%
2.50%
3.10% - 4.00%
7.75% - 8.30%
10.85% - 12.30%
buyer
buyer
seller
seller
seller
Egypt
Jordan
Morocco
GLOBAL PROPERTY GUIDE
The Middle East
The government of Prime Minister Ahmed Nazif, who took over in 2004, has been reformist,
reducing personal and corporate tax rates, cutting energy subsidies, and privatized enterprises.
The stock market has boomed, and GDP grew about 7% each year since 2006. Despite these
achievements, the living standards of the average Egyptian have not improved, and the
government has had to continue providing subsidies for basic necessities. Inflation exploded
in 2009 to 24% at its August 2008 peak, but then fell back to below 10% in June 2009 as world
food prices moderated.
2009's GDP growth was 4.7%, and in 2010 4.8% growth is expected. Reserve coverage remains
comfortable at 6½ months of imports of goods and services.
It is a mixed picture - some positive elements, and some negative.
Taxes
Tax on Rental Income (effective rate):
Monthly Income
Tax Rate
Capital gains - tax rate:
There is no capital gains tax.
Residents:
Residents are taxed on their worldwide income at progressive rates, from 10% to 20%
US$1,500
10.00%
US$6,000
10.00%
US$12,000
10.00%
Egypt
Egypt
Jordan
Morocco
GLOBAL PROPERTY GUIDE
The Middle East
Jordan's economy has been transformed in the last fifteen years. After a devastating banking
and exchange rate crisis in 1993 which halved the standard of living of the average Jordanian,
the economy has been turned from a state-controlled economy, with highly regulated trade,
to a deregulated liberal economy with a fast growing export sector, and with a reputation as
a place where business can be done. The present King Abdullah, who ascended to the throne
in 1999, is said to be a key proponent of these changes.
Jordan
Our rating: recommended
Quick property facts:
Rental yields of 7%
Price per square metre US$1,138
Round trip costs very high, at 15.25%
Capital gains taxes zero, rental income taxes maximum 10%
Jordan
Transaction Costs Who Pays?
Stamp Duty
Transfer Duty
Real Estate Agent's Fee
2% (+ 16% GST)
seller
Costs paid by buyer
Costs paid by seller
ROUNDTRIP TRANSACTION COSTS
0.60%
6%
4%
2% (+ 16% GST)
buyer
8.92%
6.32%
15.24%
buyer
buyer
seller
Egypt
Jordan
Morocco
GLOBAL PROPERTY GUIDE
The Middle East
House prices have fallen 15% to 20% in Jordan since the beginning of 2008. An oversupply of
luxury properties has been one factor (demand is much stronger at the lower end). Real estate
transactions were around 11% lower from January to October 2009 than during the same period
in 2008, when Jordan was highly affected by the housing crisis in the Gulf.
Real GDP is believed to have risen only 3% in 2009 and is likely to grow 4% in 2010, according
to the IMF, after growing an annual average of 8.3% from 2004 to 2008.
Government officials and businessmen are however optimistic, because during the recent global
crisis "no major companies that collapsed, no factories filed bankruptcy and Jordan will follow
the overall global trend improvement," says Zaki Ayyubi, Director General of Jordan Chamber
of Industry.
Foreigners can buy housing and land in Jordan, but must not sell within five years. In the past,
permission procedures were generally lengthy, but approval can now be obtained in just 10 days.
Taxes
Tax on Rental Income (effective rate):
Monthly Income
Tax Rate
Capital gains - effective tax rate:
Gains on the sale of real property are not taxed.
Residents:
The income of resident individuals is taxed at progressive rates
US$1,500
nil
US$6,000
1.90%
US$12,000
5.00%
Jordan
Egypt
Jordan
Morocco
GLOBAL PROPERTY GUIDE
The Middle East Morocco
Our rating: recommended
Unlike most countries in the Middle East, Morocco has long encouraged foreigners to purchase
and invest in property in the Kingdom. Foreign citizens can freely buy, rent and invest in land
and real estate in Morocco (except agricultural land).
Quick property facts:
Rental yields of 6.5%
Prices per square metre: US$2,161
Round trip costs high at 12.1%
Capital gains taxes high
Morocco
Transaction Costs Who Pays?
Real Estate Agent's fee
Registration Duties
Legal Fees
Notary Fee and stamp duty
Land Registry Fee
Notary Tax
Costs paid by buyer
Costs paid by seller
ROUNDTRIP TRANSACTION COSTS
2.50%
2.50%
1% - 5% (plus 10% VAT)
1.00% - 1.50%
1.00%
0.50%
8.60% - 13.50%
nil
8.60% - 13.50%
buyer
buyer
buyer
buyer
buyer
buyer
Morocco's economy has been doing well. King Mohammed VI, who succeeded in
1999, is a dynamic monarch who has brought substantial reform to Morocco, and
some national reconciliation following the torture which marked the early years
of his father's rule. The economy grew at an impressive 5.6% in 2008. GDP is
believed to have risen 5% in 2009, and the IMF forecasts 3.2% growth n 2010.
Morocco's sustained economic growth has led to a drop in unemployment, from
11.4% in 2003, to 9.6% in 2008. In urban areas, the unemployment decline during
this period was more pronounced, from 19.3% to 14.7%. In Q2 2009, unemployment
was at its lowest level yet, at 8%, before rising to 9.8% in Q3.
Inflation management has greatly improved, with inflation averaging 1.38% during
the period of 1999 - 2005, down from 6.2% from 1990 to 1995.
Egypt
Jordan
Morocco
GLOBAL PROPERTY GUIDE
The Middle East
Central to the government's plan of boosting real estate and tourism
investment is Vision 2010, the ambitious plan laid down in 2001 by
Morocco's King Mohammed VI, aimed to increase tourist arrivals to
around 10 million.
The massive tourist/residential development program, Vision 2010
- of which the coastal part has come to be known as 'Plan Azur' - aims
to bring 10 million visitors a year to Morocco by 2010 and build 6 new
coastal resorts, 250,000 hotel beds, including 180,000 located in or
around the cities.
In mid-February 2007, a study called "Arab Reform and Foreign Aid:
Lessons from Morocco" concluded that Morocco provides a valuable
lesson in political and economic reform - that top-down reforms can
be highly effective, if skillfully and determinedly carried out, and that
aid donors should lean towards countries where evidence of such
commitment is to be found. The study was published by the Center for
Strategic and International Studies based in Georgetown University.
Tourism almost invariably brings increased interest in property buying
- and will likely have a large impact both on Morocco's economy, and
on property prices.
Taxes
Tax on Rental Income (effective rate):
Rental income tax is obtained by taking 40% off the gross rental income.
The tax rate rapidly progresses from 15% to 42%, so that the top rate of tax is
actually 25.2% of gross income.
Capital gains - effective tax rate:
Gains on the sale of real property are not taxed.
Residents:
The income of resident individuals is taxed at progressive rates
Morocco
Egypt
Jordan
Morocco
GLOBAL PROPERTY GUIDE
North
America The United States
For the first time since the crisis, we recommending the US, believing that the US
cycle is bottoming. However we view talk of a 'rush to buy' as hype. Property
recoveries tend to be slow and hesitant. People are still walking away from their
mortgages.
North America: Gross Rental Yields
Canada
USA
6.48%
3.75%
We recommend buying in locations worst hit by the downturn:
Florida
Las Vegas
Western New York
Los Angeles
These are locations where price falls have been large. They're easy to track
using Zillow's Zillow Home Value Index, which allows you to compare 1,5 or
10-year price fluctuations of homes in US metros or regions, either based on
Zestimates, i.e, guesses by site visitors, or on Zillow listings, or based on actual
sales prices. Lots of other metrics too - homes sold with price cuts, amount of
price cuts, homes foreclosed, etc.
There's no necessary correlation between a large drop in values and real value,
but some states and cities just are more volatile, and as the recovery beds in,
more likely to see an upside. Since 2000, the area traditionally defined as the
Sun Belt - Arizona, California, Florida and Nevada - has experienced the largest
run-up in prices and, subsequently, has been hit the hardest in the downturn.
GLOBAL PROPERTY GUIDE
North
America S&P Case Shiller indices suggest that national home prices have been rising in
the US since April 2009, having entered their three-year decline in January 2007.
US house prices are now generally back at 2003 levels.
New home sales are up. Existing home sales are up. But housing starts are not up,
and are still at their lowest levels for 30 years, below the lows of the early '80s
and early '90s recessions.
Those interested in the New York data would do well to sift through Corcoran's
high quality reports on the residential markets of Manhattan, Brooklyn, and the
Hamptons. Anecdotal reports suggest that as banker's bonuses are back, so too i
s the luxury market.
GLOBAL PROPERTY GUIDE
Conclusion: a bias for the developing world
Our recommendations may seem surprising, with their large number of third world
names, and their large number of 'opportunistic' suggestions, like Hungary, Thailand,
and Jordan. The U.S. is the only developed economy on our 'recommended' list
(and only some parts of the U.S.) But in our view these recommendations reflect
reality. We do not believe that 'developed' countries are necessarily safer investments
than third world cuontries. The last two years have disabused everyone of that notion.
The third world may seem to have major issues - kidnappings, or social unrest - but
these are often seen locally as minor commotions.
What matters, in our opinion, is that that property investments should pay well, and in
many developing countries they stand a chance of doing so, whereas in the developed
world, the housing boom is played out, and is now going into reverse. Do you want a
return on your income of 9% and possible rapid capital gains, in a fast-growing country?
Or do you want 3% returns and no likelihood of capital gains, but a 'safe' i.e. Western,
environment?
True, many developing countries have tax disadvantages and high transactions
costs - but some do not. These issues have to be carefully weighed. Fast growth is
not a panacea. Everything should fit together, and usually not everything quite does.
We believe we have identified countries where many pieces of the puzzled fit - enough
to permit further exploration of the opportunities.
GLOBAL PROPERTY GUIDE
HOW WE RATE COUNTRIES'
PROPERTY INVESTMENT POTENTIAL
The Global Property Guide's mission is to conduct impartial research into residential
property markets, with a view to investment returns, on the basis of the well-known
principles of 'fundamental investing' which, as applied to the residential property
markets, may be summarized thus:
We believe that gross rental yields, like P/Es on stocks, are good indicators of whether
house prices are fair value (even if people are not 'buying for yield').
High transaction costs, high income taxes, high capital gains taxes, are all strong
negatives, lowering the prices which are appropriate. High local interest rates, too.
Strong GDP growth is a very important factor pushing house prices up. However, it
is hard to forecast. Even the OECD forecasts only stretch 2 years out.
Governance matters. Inefficient and corrupt governments hamper GDP growth.
Watch for negative news stories, high inflation, and balance of payments problems.
Where there is good government, we prefer to know this will continue, i.e., are
reassured if there is a visible successor government/president of good quality.
Attractive countries with beaches, historical monuments, and peace and order
tend to do well, long-term.
SPONSOR'S
EDITORIAL
Sponsored by:
ASIA PACIFIC INVESTMENT PARTNERS
Mongolia:
One of the world's fastest growing economies
To the surprise of many, Mongolia will sit on the short list of the world's fastest
growing economies during the next decade.
This is a story of mineral wealth, and of its impact on a small and (till recently)
relatively undeveloped economy. It also reflects good luck and skill. Mongolia is
democracy (not untroubled); there is press freedom; there is a vigorous free
enterprise economy; there are large amounts of foreign direct investment (FDI);
there is enormous foreign interest; and there are many multilaterals actively
advising the government on infrastructure development.
Mongolia is "a country on the point of transformation", according to Rencap, the
Russian investment bank. Renaissance Capital, in a recent research report, has
drawn attention to the sheer scale of the development, the inrush of capital, has
predicted that the number of expatriates in Mongolian will increase from under
5,000 to 50,000 in the next 5 years.
Mongolia is a country on the move - but the journey is not without hiccups.
Mongolia in 2009
Unfortunately, Mongolia was one of the economies hardest hit by the global
economic downturn:
GDP fell by 4% in 2009
Inflation ran at 30% by end-2008, and mid-20% in 2009
Copper prices fell from $8,000/ton in mid-2008, to $3,400/ton early 2009
Major consumer nations, including China, severely curtailed imports
Mongolia's previously healthy fiscal balance moved into deficit
Prices of cashmere, the primary source of income for the majority of
Mongolia's rural inhabitants, fell by two-thirds
The construction sector froze
Though Mongolian banks had limited direct exposure to foreign financial
markets, the financial sector moved into shutdown mode.
SPONSOR'S
EDITORIAL
Sponsored by:
ASIA PACIFIC INVESTMENT PARTNERS
The sharp shocks suffered by Mongolia centred on what were until now key
economic drivers: commodity exports (rather than development); Ulaanbaatar
-centred construction and services; and animal/cashmere husbandry. These
led the pre-2008 development charge, and suffered most.
The first chart illustrates the dip in mineral income.
However the second graph shows a different picture, charting the rise of a
broader economic base (which tends to be eclipsed by the minerals numbers)
that has held up comparatively well.
Mongolia in 2010
The Oyu Tolgoi JV agreement, signed end-2009, between the Mongolian
government and Ivanhoe-RTZ will bring investment worth $4-5 billion over
the next nine years. This will have a huge impact, as a "wall of money"
descends on Mongolia ($768 million has been earmarked as the construction
budget for 2010). There are also other important agreements such as Tavan
Tolgoi (due early 2010), and other subsidiary contracts
Mongolia's economy is about 25% smaller than Moldova's, yet:.
Mongolia's copper, coal, gold and uranium reserves surpass those of Kazakhstan,
Russia and Australia.
Mongolia's molybdenum reserves are world-class.
There are potentially large oil resources. Much of Mongolia's mineral base still
remains under-surveyed.
The scale of development of Mongolia's mineral wealth may propel the country
to a decade and more of double-digit expansion. This growth must inevitably drive:
consumer sector demand
real estate
Foreign direct investment (FDI) drives Mongolia.
est. proj.
'01 '02 '03 '04 '05 '06 '07 '08 '09
FDIs in Mongolia US$mn
800
700
600
500
400
300
200
100
0
Source: World Bank, IMF, UNCTAD, ADB
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However it is the secondary "mining support tail" which will grow alongside
mining, which will generate many of the most attractive new investment
opportunities - accommodation, financing provision, transport, real estate,
IT and technology upgrade and training, retail, infrastructure and logistics,
HR/personnel provision.
Ease of doing business in Mongolia
What sets Mongolia apart from most of its peers is its institutional structures.
It has a genuinely competitive and open business and political system, with a
free press and open elections. It has a culture of enterprise.
Globally, Mongolia ranks in the top third of countries in terms of ease of doing
business - above e.g. Spain and Poland, and much higher than any of the BRIC
countries. At the end of 2009, the IFC (along with the World Bank) rated
Mongolia in an Asian context for "ease of doing business":
1 4
13
20
58 61
83 88 92
129
135 140
165 170
Singapore
Thailand
Malaysia
Mongolia
Taiwan, China
China
Brunei
Vietnam
Indonesia
Cambodia
Philippines
Lao PDR
Timor-Leste
Hong Kong, China
East Asia avg
ranking 83
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Commodities 2010: prices will rise - but not to 2008 levels
Mongolia is highly sensitive to commodity price fluctuations, as about 50% of
FDI goes to Mongolia's mining sector.
Economists at the International Monetary Fund expect a 2.5% rebound in
global economic growth in 2010, increasing demand and elevating prices for
energy products, metals, industrial commodities and construction materials.
Mongolia has seen the Tugrig appreciate by some 5% against the Yuan in 4Q
2009. Allowing currency appreciation has given the Mongolian central bank
flexibility to tighten monetary policy.
Where does this leave Mongolia?
Anticipating the future is always a fraught exercise, but nonetheless there are
plausible benchmarks:
The commodities boom of 2005-07 provides an analogy for what awaits
Mongolia - rapid growth.
All political parties in Mongolia agree that the way forward lies not in
deploying resources on social spending programmes, but targeting the
SME economy, supporting business, and promoting growth
The Government and the whole range of international monetary agencies
working in Mongolia (e.g. IFC, WB, IDB, EBRD, ADB, IMF) are aware of how
relatively unprepared the country's infrastructure is.
Only 67% of population has access to power (electricity), and only 35% to
water. Only 3.5% of the roads are paved, and the existing ones need capital
repair. The railway network does not match growing export?import cargo flows.
Mongolia's infrastructure needs US$8bn over the next decade.
The multilaterals' intention is to prevent the expansion stalling through lack of
means, by putting the infrastructure in place - water, sanitation, electricity and
heating supplies, road construction and railway transport.
The "big unknowns" for the 2010 are:
Can the Chinese economy continue to hold up its leading pace?
Will Asia "decouple" from the Western economies?
The bursting of what virtually all commentators see as the unstable and
problematic regional asset bubble.
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Plainly, any real estate bubble deflation will impact overall lending, liquidity, and
psychology. Some banks (especially Chinese) may suffer write downs. But then what?
Will that deter Mongolia's main investors? No - most are well-collateralized corporate
players in minerals, or non-real estate consumer-retail SMEs.
Conclusion: Mongolia's future
Mongolia will face substantial economic dislocation in coming years. Despite the
challenges, Mongolia's transformation now appears unstoppable. According to
official estimates, over the next five years:
Coal production will double
Gold production will treble
Copper output will quadruple.
The Government intends to establish three major state-owned holding companies
(minerals, power, infrastructure) and raise significant amounts of capital by offering
their shares in international and domestic stock markets. These privatisations will
provide additional spurt to the local market and to capital inflows.
Mongolia's economy is diversified, giving it a multi-based appeal for investors.
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Opportunities in the property sector
Property prices in Ulaanbaatar have risen historically at more than 25% per year
post 2002. The recession pulled them back to early 2007 levels.
The effects of the global financial crisis on the Mongolian real estate market were
very visible. Numerous cranes throughout the city ceased moving and buildings
stood unfinished throughout 2008 and 2009.
Yet now there is a severe shortage of modern residences, a lack of urban
infrastructure, a lack of alternate local domestic investment sectors for the
new middle class, and an influx of international expatriates.
The large increase in the expatriate population means there will be a substantial
increase in demand for quality real estate in the capital city.
Many of the centrally located office spaces like Monnis and Central Tower are
quickly filling up.
Warehouse space is in increasing demand. Unfortunately, at the moment supply
does not match the needs of businesses.
As 2010 arrives and a new chapter opens in Mongolia, the international investor
community has many promising new investment opportunities.
For more advice, please contact:
Asia Pacific Investment Partners
Room 303, 3rd Floor,
St. George's Building,
2 Ice House Street,
Central, Hong Kong
www.apipcorp.com
(+852) 8121 9947
olympic@apipcorp.com