Headlines - London Financial Times - "Face South for Improved Prospects"

London Financial Times - "Face South for Improved Prospects"

Published: April 14, 2005

Real Estate Investment
Face South for Improved Prospects

There is still a pool of affordable second homes outside the US, says Stephen Schurr

Before taking the plunge

Interested in buying a foreign home? Take these steps first
  • Research the region to learn about the legal system, foreign ownership rights and general real estate investment climate. Websites such as
    www.businesspanama.com and
    www.discovercostarica.com are great sources
  • Get connected with well-established local professionals, including attorneys, notaries and real estate brokers
  • Learn the track record of the real estate developer in question
  • Get title insurance, through a US-based provider if possible
  • Ascertain all estate, transfer and wealth tax implications of a purchase on a local and federal basis
It only feels like the entire global housing market is in a bubble. For wealthy Americans looking to buy real estate as an investment and holiday home, the opportunities for finding bargains are few and far between - especially in coastal resort towns. Looking to the familiar terrain of western Europe, the situation is similarly grim.

But many international real estate experts advise clients concerned about overpaying to look south of the border to countries such as México, Costa Rica and Panama, or in the emerging markets of eastern Europe. Individuals can have lingering, if often misinformed, concerns about property rights in these growing economies.

But as long as buyers ensure they are working with brokers with well-established reputations in the region, the chance to pay a relative pittance for luxury homes in beautiful, up-and-coming locations holds great allure.

"There are some pockets in the US and western Europe but the real opportunities are elsewhere, "says Peter Kempf, European managing director for Quintess, which scouts the globe for luxury homes for its residence clubs for wealthy individuals.

Of course, some advisers are discouraging clients from looking abroad because the dollar is so weak, and it is true that the dollar buys a lot less than it did three years ago.

But given the strong likelihood that the dollar is in the throes of a long-term structural decline against other currencies, in a few years today's dollar may look robust by comparison.

Meanwhile, as emerging market real estate opportunities continue to grow and attract the eye of scores of well-heeled baby boomers, the odds of continued price increases runs high.

The best template for the investments opportunity may be Costa Rica, The Central America nation is blessed with verdant countryside and has a long tradition of socio-economic stability.

It has a lower infant mortality rate than the US and the second-highest literacy rate in the world. The former has drawn hordes of eco-tourists, while the latter has attracted a massive investment by Intel, which represents 30 per cent of Costa Rica's exports.

Costa Rica also takes foreign property rights seriously-in fact, the constitution guarantees foreigners the right to own land, such transactions are in US dollars and US title insurance companies can offer title guarantees.

The foreigner-friendly environment, coupled with the introduction a few years ago of direct flights from the US to Costa Rica has spawned a real estate boom largely made up of Americans.

"Property values have increased more than 750 per cent over the past 10 years," said Scott MacDougall, an expatriate American in Costa Rica real estate who oversees the website discover-costarica.com. Even with the appreciation, a three-bedroom home with a pool and within a five-minute walk to the beach generally costs less than $300.000, he says.

"We have advised our long-term clients this is an acquisition period, no matter if the purchase is ocean view a home, condominium or villa." he says. But he adds: "A conservative estimate would put growth at a rate of l5 per cent next year."

While Costa Rica is a great success story it is hardly an undiscovered gem. That description may apply more outside its southern border in Panama.

Like Costa Rica, Panama is loaded with exquisite beach towns, has inviting tax and ownership policies for foreigners and a long history of political stability. And Panama City is an urbane, safe city that has long had a military and civilian US presence because of the canal. A gated-community, three-bedroom luxury home on a golf course in the mountains can be had for $250,000 lo $350,000, real estate experts say.

"The biggest problem with Panama is the perception in the US that Manuel Noriega is still running things, even though he's been in jail for a long time." says Chuck Bedsole, who oversees Latin American real estate for PricewaterhouseCoopers. While Mr Bedsole is upbeat about Costa Rica's prospects, he thinks Panama is at an earlier stage in the real estate boom...

Mr Smith says that if we are in a real estate bubble, big, expensive cities such as London and New York will hold up better than more out-of-the-way places because "there is always a need and desire to be in the important cities".

Nonetheless, adherents of Latin America and Eastern Europe say the markets for holiday homes show tremendous upside potential, bubble or no bubble. As Mr Kempf says: "Waterfront is always gold, anywhere in the world."