International Real Estate Uncovered By Taylor White
Two bubbles and their bursts had been notorious incidents in the last two decades. The first one was the dot-com bubble, also known as IT bubble, which existed between 1995 and 2000 but collapsed in March 2000 due to various reasons. This was known as the dot-com bubble burst. The second bubble burst was the housing market collapse in the United States, which triggered a worldwide economic recession, from which many countries are yet to recover. The housing bubble of the United States was the result of arbitrary lending by financial institutions and sub-prime lenders for home loans across the country. The housing prices peaked during the beginning of 2005 and remained stable for about a year, before starting to decline in 2006.
Still, this had no direct bearing on the housing market collapse. The indiscriminate sub-prime market lending to people with bad credit records or low credit scores was the chief reason for the collapse of mortgage loan markets. The failure of homebuyers to repay their mortgage payments went on increasing during 2006 and 2007 and housing foreclosures rose at an alarming rate. The continuing increase in foreclosures finally led to a huge financial crisis and real estate market collapse in August 2008. This was termed as the bursting of housing bubble in US.
Impact of Housing Bubble Burst
This collapse of the US housing market impacted not only the housing valuations but also the mortgage markets, real estate companies, home building products suppliers, consumer product manufacturers, and homebuilders. The next in line to be hit were the hedge funds, financial institutions, banks, and foreign banks that had invested in financing or refinancing of the housing loans and mortgages. Even the government support to the major housing refinance agencies, such as Freddie Mac, Fannie Mae, and the Federal Housing Administration, along with other financial institutions by allocating more than $900 billion to rescue them failed to stop the downslide. This led to a nationwide recession. This ultimately dragged down most of the world economies, since they depended on exports to the United States. The real estate markets in these countries also suffered due to the depression or sluggish economic growth.
In the United States, the states most affected by the housing bubble burst were California, Nevada, Arizona, Florida, Michigan, Colorado, Oregon, Idaho, Utah, Illinois, Arkansas, Tennessee, Indiana, Ohio, Maryland, Georgia, Virginia, Massachusetts, New Jersey, New Hampshire, Rhode Island, and Hawaii. This is exactly half the number of the states in the country. This is not to say that other states were not affected by the collapse of the housing market but the impact was slightly lower, even though definitely significant. The bankruptcy declaration by various banks and financial institutions due to this housing bubble burst had been continuing until now in the United States.
Differentiating between Good Real Estate Investment and a Bubble One
It is clear that the housing market bubble burst had brought down real estate prices drastically in most of the countries in the world. This appears as a major minus point for the global real estate industry. Still, you would be able to appreciate the benefits and opportunities presented by the present situation, if you think calmly about it in a positive manner. When prices hit rock bottom, then there is very little chance for them to go down further. The only way they can go is up. Hence, buying properties right now at lower prices would definitely result in substantial returns in the next several years.
This would definitely happen since the economies of most of the countries would slowly recover including that of the United States in this decade. The trick is to identify which real estate markets would recover faster and which ones would languish for a longer time. To make this major differentiation between good markets and bubble ones, you should first understand the various factors that affect the present valuation and future appreciation of real estate properties in diverse regions.
Factors Influencing Real Estate Securities
To understand the risk or profitability issue between a good real estate investment and a bubble market, you should consider several factors. Some of them might appear trivial or irrelevant but they also play a crucial role in making the investment a profitable one or leads to a considerable loss. The fundamental factors that you should consider in comparing innovative investment in emerging markets and traditional investment in known markets are presented below.
. The changes in economic conditions of the country or region under consideration in the past 3-5 years
. The changes in real estate market conditions there
. The changes in the actual values of various types of properties
. Risks related to local competition, local economic situations, and overbuilding
. Past, present, and future trends in property taxes and real estate operating expenses
. Present and anticipated changes in local laws related to real estate
. Current and future variations in real estate and rental values, rental incomes, property values in the neighborhood and appeal of property to buyers and tenants
. Changes in interest rates and financing options
. Your determination to take a long-term view about the investment and not crave for millions overnight
Conclusion
When you had understood the above crucial factors thoroughly, you could invest in any market anywhere in the world and gain substantially over a period of time. What is required from you is a keen interest in analyzing each market and each property objectively, without any bias. You should study all relevant data of the market and the properties that you are considering to arrive at an informed solution. If you do this diligently, you would never make the mistake of investing in a bubble market but would be able to clearly identify good real estate investment opportunity, whether it is in Chile, Thailand, Slovenia, or Patagonia. Go ahead and evaluate new markets properly. You would come out on top.
Taylor White is an international real estate investor and leading the charge at International Real Estate Listings the worldwide leader in International real estate and International real estate listings. International real estate owners, agents, and developers are encouraged to create an account, upload an unlimited number of listings, write as much creative property details, include a You Tube property video, and it will be activated as a basic listing for 6 months, free.
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