Real estate in strategic locations has emerged as the winning asset class.
By Kashif Ansari and Shan Saeed
The global financial markets will remain volatile and uncertain for the next 7 years, according to famous real estate billionaire Sam Zell based in Chicago, USA. Europe, China and USA markets would remain in choppy waters in 2H 2015 as investors are losing confidence in the equity and bond markets. This has provided an opportunity to the global savvy investors to revisit their asset portfolio strategy and to take long position in a new asset class that has emerged i.e. real estate—the new global currency.
According to The Economist’s latest issue, August 28, 2015, “Stomachs are churning again after China’s stock-market endured its biggest one-day fall since 2007”; even Chinese state media called August 24th “Black Monday”. From the rand to the ringgit, emerging market currencies slumped. Commodity prices fell into territory not seen since 1999.
The contagion infected Western markets too. Germany’s DAX index fell to more than 20% below its peak. American stocks whipsawed: General Electric was at one point down by more than 20%. China’s stock market rout has nothing to do with the current shake up of the global markets. China is being dragged into this crisis and you can’t attribute everything to China in these uncertain markets.
There are many variables working in the financial market landscape. The US Federal Reserve is expected to review its interest rate policy in September which is causing speculators and investors to pull out quickly from the emerging markets. Most investors are not aware of the aproaching financial tsunami coming in the market soon. What’s 10 times bigger than the gross world product (GWP) and getting bigger every year? Here’s a hint: It’s a financial instrument that you’ve probably never heard of and, even if you have, most likely don’t understand. But what you don’t know or can’t grasp can, in fact, hurt you. It can hurt all of us like a time bomb.
Derivatives – toxic asset
They’re called derivatives, and like so many investment vehicles today, the way they work is a mystery even to many of those working in the financial industry. Here is a very down-to-earth explanation of what a derivative is according to a New York Times article published in 2014:
“A derivative is a contract between two parties whose value is determined by changes in the value of an underlying asset. Those assets could be bonds, equities, commodities or currencies. The majority of contracts are traded over the counter, where details about pricing, risk measurement and collateral, if any, are not available to the public. Simply put, a derivative is a side bet.”
Safe havens?
So, where should investors park their money? Where are the safe havens?
According to the data we have gathered globally, our reports suggest that most wealthy investors are placing funds in real estate to protect their wealth. In these turbulent times, investors are more concerned about holding onto their wealth and preserving them as the global economy navigates through difficult times.
The best destinations for the investors to find value enhancing properties are:
a) Kuala Lumpur
b) Melbourne
c) Dubai
d Jeddah
e) Toronto
These cities can provide a ROI ranging from 3% to 17% depending on the location and market dynamics. Capital appreciation can be easily expected in these locations due to solid fundamentals and positive outlook of the real estate market. Most smart investors have made money by investing in real estate during treacherous times globally. We could see more bad times ahead and investors need to be wary of the financial markets in order to stay ahead of the curve and to make solid profits and sustainable returns.
Real estate has emerged as a new investment tool for many governments to attract foreign investors by providing them residency permits, freehold property tenure and passport benefits. Many European governments are now providing permanent visa residency programs for smart investors if they invest in real estate in their countries. The Vietnamese government has recently attracted USD1.7 billion in the real estate market from January 2015 to August 2015 alone.
So the savvy investors who buy properties globally are analyzing the markets where benefits are higher than the cost structure with added variables for wealth preservation.
In fact, smart investors are taking long positions in real estate in the cities with the following positive variables:
1. Demographics
2. Economic progression
3. Infrastructure stability
4. Urbanization
Kashif Ansari is CEO of IQI Group and has 20 years of global market experience in the field of Real Estate, Strategic Business, Asset and Treasury Management.
Shan Saeed is IQI Group’s Chief economist / Investment strategist with 15 years of financial market experience. IQI Group is a property and investment company present in Kuala Lumpur, Singapore, Hong Kong, Melbourne, Dubai, London, Jeddah, and Panama