INTERNATIONAL REAL ESTATE INVESTMENT
With headlines in
the media reading " Fraud Inc.: Will it end?" due to a big day for Washington as
senators grill telecom and banking executives regarding two Wall Street scandals
(for the banking sector: What role, if any, did some of Wall Street's biggest
banks,
particularly Merrill
Lynch, play in the collapse of Enron? For the telecom sector: the collapse of
WorldCom and the implications of recent accounting revelations) and President
Bush signing a new corporate fraud measure into law, which will create a new
board to monitor the accounting industry, with new and tougher penalties for
corporate fraud (the bill quadruples the maximum prison term for executives
who commit corporate fraud to 20 years from 5 years) one needs not to wonder
why investors are looking back to invest in real estate.
The events of September 11 has forced most analysts to revise their forecasts by projecting a slower and more moderate growth and return, but this revision rather affects the short-term (2002/2003) leaving the long-term looking good and bright.
The International perspective:
US interest rates have fallen from 6.5% at the start of 2001 to 2.0% by early November in an attempt to reduce the severity of recession in the US.
US GDP growth was negative in 2001Q3, the biggest fall since 1991, whilst 700,000 jobs were lost during September and October - the largest fall in more than a decade.
Forecasts expect the US economy to recover slowly late on next year.
Economic growth prospects in the EURO-ZONE have eased significantly since 9/11 with GDP growth in GERMANY now expected to be as low as 0.75% this year.
Japan has now slipped back into recession with negative growth also expected in 2002.
The UK perspective:
9/11 events have largely left medium-term GDP forecast unchanged.
Forecasts expects a weaker jobs market.
Consumer spending is forecast to fall but will remain reasonably strong @ expected 2% pa.
Annual UK GDP growth slowed to 2.1% pa in 2001Q3
UK base rates stands @ 4%, lowest level in 46 years!
UK property shares continuously out-performing the FTSE-100
Index is a strong indication of where investments are safe and profitable.
Weak performance of UK equities and the general belief that capital growth will
not be enough to compensate low dividend yield has created the following scenario;
new investors seeking to buy properties, and for the same reason few investors
willing to sell their properties.
According to the IPD UK Residential Investment Index, results for the calendar
year of 2001 shows a clear gap between Property Yields on one hand, and Equities
and Gilt Yields on the other. For instance, semi-detached houses had a Capital
Growth on their market assessed value of 15.8% in 2001, while Capital Growth
on Equities @ FTSE All Share Index where -15.4%, and Gilts (long dated) -3.8%
respectively for 2001.
Income Returns showed a similar trend. For instance, Semi-detached houses had
an Income Return of 7.9% for 2001 while Equities on FTSE All Share Index and
Gilts (long dated) where @ 2.2% and 5.1% respectively.
Capital Growth and Income Return together reported a Total Return of 23.6% for
Semi detached houses, -13.2% for Equities traded @ FTSE (All Share) and 1.3%
for Gilts (long dated) for the calendar year of 2001.
With a Total Return between 16% and 23% pa depending on the type of property,
and with interest rates historically low driving mortgage lending to historical
heights (according to the IMF projected inflation in the UK for 2002 and 2003
are 2.4% and 2.5% respectively) International Real Estate Investment is to be
considered very seriously.
Joe Weberhofer
Real Estate Broker
PRIME INTERNATIONAL PROPERTIES
