Tuesday, 20 March 2012

Investment into real estate in developping countries

investment real estate
In most developed countries like UK and USA houses prices now are stagnant. It could take months or even a year to sell a property at descent price. When I was living in Aylesbury near London in United Kingdom, every day I was walking to my job and was seeing the same properties for sale for years. The house near me was sold after one year and a half.

If you look at real estate market at developing countries you can see completly different picture.When I moved into Moscow I was shocked, investments into real estate are a golden field you can grad as much as you want. Speculative demand quickly drives up the price (increase in recent months does not fall below 0.5% per week). In some profitable districts it rises even to 1% per week. You can easily deal 50-70% per year or even more if you are lucky. .This is especially true flats of the lower price segment, where customers in an effort to catch up with "Leave the train" are ready to buy housing at any stage of construction and in virtually any location.

Assessing the situation, more and more people are buying apartments in buildings under construction are not to use them for other purposes, and to invest money or make money on resale.

Why is it so popular?

In answering this question - the fusion of mathematics and psychology. People are looking for ways to keep their savings. In fact, capital gains are now able to provide the two markets - the stock and real estate. The stock market is potentially more profitable, but riskier and less predictable. Real estate is always and everywhere seen as the most reliable way to invest. And in our situation, investments in real estate not only compete on an equal footing with investments in securities, but in many cases provide a higher return. In addition, stocks and bonds, most perceive as being "virtual" and the apartment - it is an object, the notion of which way or the other can make each.

How much can you earn?

Since the beginning of 2000 the average price of a typical housing under construction in St. Petersburg has more than 2.5 times, with the main growth was in the past two years.

For example, in the past, in 2011, the price of housing under construction in mass demand, increased by 43.4% in dollar terms. But this average. For most successful projects was the rise in prices of 50-60% per yearand above.

Here is an example of successful investment in housing under construction: I bought my first flat in Moscow for 48 000$ several years ago and now it costs about 350 000$, also i received 1000$ each month for renting it.

Why is it under construction?

In contrast to the apartments on the secondary market, the overall profitability of investment in housing under construction consists of two components: the general market growth rates per square meter is also added to the growth by increasing the availability of building the house (from "zero cycle" before the final takes place on average two years).

However, the amount of "bonus" for the financing stage of excavation varies and depends on the behalf of the developer. Less well-known companies are willing to give real estate investors a higher bonus. In the largest and most reliable companies the size of the bonus is rarely more than 15% per annum and has a tendency to decrease. These companies do not make sense to borrow from real estate investors at high interest rates - they can get a cheaper loan from a bank.

Whatever it was, even without relying on market prices, an investor can provide not less than 10-12% per annum only "for the faith in the successful completion of construction."

In addition, the apartments to be built - this is not an object property (it can become so only after completion of construction). As a result, the seller shall be exempt from any tax payment from the sale.

What to buy?
People who invest in the housing under construction, for its operations often choose economy class housing. And in most cases we are talking about the one-bedroom apartments. This is the most liquid commodity, which enjoys high demand in the market. With the continuous rise in prices and lack of ability to pay customers in the segment, one-bedroom apartments concentrated much of the demand, and virtually all of the primary home purchase, which if developed lending instruments would have been largely divided between two-, three-room apartment.

For a cheap and small-sized apartments is the maximum number of transactions, problems finding buyers in the current circumstances do not arise. And this is important. For the investor it is important not only because the time to buy an apartment, but it is easy to sell it, not forgetting about your profit.

However, the apartments elite class can often bring the investor more money in absolute terms.
The downside - the need for substantial upfront investments and possible liquidity problems (the process of finding a buyer luxury apartment has a chance to severely delayed and thereby reduce the potential yield).

By selecting an object for investment, real estate investors to assess a number of factors affecting its potential profitability. Among the major - the location of future home, the prospects for development of infrastructure, the method of construction and finally the name of the company, a leading construction. This is followed by smaller ones, but often no less important factors: where the windows of the future apartment, what floor, there is a balcony or a loggia, which inserted the windows, which are scheduled lifts, etc.

Who buy?

People who invest in the housing under construction, often prefer to invest in the best-known objects of urban developers, who together control about 60% of the proposals in the primary market.

Here the question is mainly limited by the minimization of risks - the executive order and the prospects of the leading property developers are assessed higher than that of smaller lesser-known players in the market (perhaps not always objective). However, where the higher the risk, and higher income potential - is the general rule.

How much money do you need?

The minimum threshold for entry to the market price corresponds to the typical one-room apartment (about 80 thousand dollars). Typically, resellers apartments prefer 100% advance payment.

However, the primary market offers investors the opportunity to reduce the amount of starting investments using a variety of schemes installments. But it raises the cost of the final installment of the cost of apartments and reduces the potential return on investment. However, it suits many. There are many subtle nuances at first sight, manipulation of which allows investors to be a winner in any case. Here's an example. The investor lowers the threshold of entering the market and makes, say, a 50% discount in advance for an apartment. Later, the "real" buyer pays not only the remaining half of the purchase price and the total difference between the "start" and "current" cost per square meter (the income of the investor), but also part of the installments.

Recently becoming more common and buying apartments to be built on borrowed money. Investors are taking in banks unsecured personal loans, add money to their friends and make the full cost of the apartment. The income of investors from the difference between the sum received from the sale of an apartment paid on income and bank interest. If this operation was carried out last year, the difference would amount to approximately 30% per year in foreign currency.

When buying and selling?
In recent years the market functioned as a standing housing seller's market, which dictates the price. In the near future is unlikely to change radically. The demand for housing, particularly low-cost, is still significantly higher than the offer. The course of events shows that the construction industry in its development lags behind the needs of the market.

Since the sharp increase in housing supply in the near future should not expect, we can assume that prices will continue to grow. The dynamics of their growth depends on several factors. In addition to the general economic situation, it is possible increase in construction and development of home purchase loans. If construction does not increase the volume and the volume of loans will increase sharply, it will lead to further inflation of prices. On the contrary, if the proposal will significantly increase (at least 1.5 times), there may be some stabilization of prices, which initially expressed in a slowing of growth to predictable performance.

Most likely, the rise in prices in 2012 is unlikely to be below 30%.
Most investors, aimed at extracting revenue from the resale of apartments in buildings under construction, carry out investments in the "stage of excavation." First, it is starting from the lowest point for maximum capital appreciation. Second, in the later stages of construction are often not invest in anything. The most liquid (low-cost small-size one-and two-bedroom apartment) is almost completely sold out at the beginning of sales.

Many investors, resellers prefer not to wait for delivery of home state commission. The fact that potential growth rates is almost exhausted, when the future becomes the house completely finished shape. Then the growth slows down, the last spike occurs already at the final stage. Investors who are interested in maximum returns of capital, "captures" the maximum growth rates in and out of the game.

How all this hard?
Selling an apartment under construction "final" by the purchaser under the contract of assignment of claims. It happens that the company's developers have introduced a variety of restrictions on such transactions (such nuances need to be interested before signing the contract equity participation). However, in many cases, the sales staff of construction companies not only failed to prevent the assignment of rights, but also ready to assist resellers in finding potential buyers, with a little interest.
"Advanced" investors generate a large number of successive operations of purchase and assignment, "play" on the discrepancies in the growth of prices for one-, two-and three-room apartment, and so "simple" to do all of the investor does not make sense. So the complexity, by and large, is to find reliable and profitable investment of the object and choose a good time to sell.

What are the main risks?
Two major risks. The first - the risk of default constructor of its obligations. The probability of this scenario is quite low for a proper choice of the construction company. The safety margin of the largest players in the market will allow them to finish the construction, even in adverse market conditions change. The second - "bad behavior" of market prices (you can either earn nothing or even lose). This development is likely - the rapid rise in prices can not last forever. The question is, when prices will stop and whether it will mean only stabilize or possibly decrease. Say for sure, no one can.
To sum up the estimates of experts, the price rise could last for approximately for 2-3 years. Forecasts of growth rates differ. Builders pinning hopes on mortgage lending - this will stimulate the demand for apartments, even at high prices.


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