ADVENTURES IN THE "ONLY MAJOR ASSET CLASS"
by Leif Simon
"Global real estate will be the only major asset class that could deliver double-digit returns over the next five years."
Barton Biggs,
Morgan Stanley's most famous bear
Certainly, no one knows for sure. But Barton Biggs may be on to something. In fact, I've come to the same conclusion he has regarding global real estate...and I'm
banking my future on it.
Why should international real estate beat other investments in the coming years? To help answer that question, I'm going to borrow an idea I picked up at an investment conference I attended recently in Managua. At the conference one of the speakers suggested taking a "Time Machine" approach to investing.
The concept is simple: What if you could go back in time to consider an investment opportunity at the beginning of its life - knowing everything you know today? In
other words, if you could go back and invest in Microsoft before it went public, knowing what we know now, would you do it? I'll answer only for myself - yes,
indeed, I would.
What if you could go back to 1979 and buy a few acres of Pacific beachfront in Costa Rica? Would you do it?
Again, yes, I would, knowing what I know today. Any piece of Costa Rica's Pacific coast purchased 20 or more years ago is worth many multiples of the investment
price today.
But buyers in Costa Rica in 1979 and 1980 didn't know then how things would turn out. At the time, they were making a speculative investment.
What if the time machine could take you back only as far as 1985? Would you buy land on Costa Rica's western coast? Yes, of course, knowing what we know today.
Although prices had gone up (in some cases double or more) since '79 and '80...there was still considerable appreciation ahead.
A friend reminded me of this point the other day. She was telling me about her recent visit to Mexico, where she had been looking at property on the Costa Maya.
Everyone she met, she explained, commented wistfully that he wished he'd invested in the region two years ago.
Funny, I thought. All the people I met here two years ago were saying the same thing - that they wished they'd invested two years earlier. I think a lot of people miss
out on a lot of great opportunities this way.
Take a look at recent history. You could have bought a quarter-acre lot in Ambergis Cay, Belize 10 years ago for $15,000. Today, it would sell for 10 times that. In
the 80's when Mexico decided to develop Acapulco, you could buy a quarter-acre for a $1,000. Nowhere but in the global real estate markets are there returns like
this available.
Risky?
With scandal in the air on Wall Street these days, risk seems like a pretty relative term. Now that $1000 lot in Acapulco would change hands for $100,000. The potential 10,000% return seems well worth the modest investment.
Here's the kicker. There are opportunities just like these all over the world today.
Just a few years ago I purchased a small cottage on a few acres in the lush green countryside of Ireland. Not only do I love living there, but it's appreciated
significantly - better than doubling in value - in the short time that I've owned it.
Positive changes in the tax code and investment friendly government policies in Ireland have drawn business from around the world to the Land of Leprechauns. While business has been booming, property values have soared.
My only regret is that I didn't buy sooner. If I had, I could have done two or three times as well...
Still, Irish growth and development is nowhere near its peak. I intend to ride this wave for years to come.
In fact, there are at least three good reasons that you can count on global real estate - the "only major asset class" - not simply to hold its value...but to help you
grow your wealth in tough times.
First of all, certain foreign markets are much cheaper than the U.S. The U.S. has experienced a huge real estate boom. Some might call it a bubble. Prices are
high - just about anywhere you look. But will they stay high if the equities market continues to fall...or stagnates for years in a Japanese-style recession?
Who knows? Some analysts are predicting a real estate bust similar to the 80s. But why guess? Buy low, sell high. Unlike equities...property can never go to zero.
One thing is certain; if you restrict yourself to US real estate, you'll miss out on the fastest growing economies in the world. U.S. real estate markets are highly developed and efficient. It's not easy to find a real steal. This is not the case in foreign markets.
There are no multi-list real estate agents in most countries. There are plenty of market inefficiencies to exploit. And if you buy cheap in the right location, at
least you shouldn't lose money. Plus, there are some foreign markets that are extremely undervalued and poised to boom right now.
On top of that, global real estate can be a great hedge against the falling dollar. In the last few months, the euro has risen against the dollar from 82 cents to over
a dollar and back again. [Today it rests at $.98]
That means an investment like one I made in Spain has not only gone up 35% in the last several months - not including currency advantages - but it has also fully
protected me from a precarious, and in my opinion still-overvalued, US dollar.
The Argentine currency has been severely beaten down... and a property that would have cost you $40,000 last year can be had for as little as $10,000 US. These are
the benefits savvy global real estate investors take full advantage of today. These are properties that would be going for at least $500,000 in California or Florida.
I believe that Brazil and Argentina offer the same kind of opportunity today that Ambergris Cay or Acapulco did several years back.
And as I write to you today, I'm staying at Rancho Santana on the Pacific coast of Nicaragua. At this gorgeous private development, quarter-acre lots that
were selling for $35,000 a couple of years ago are priced today at $55,000. That's a pretty nice return already. But if they appreciate only half as much as neighboring Costa Rican beachfront lots have in the last ten years, you'll have a hard time getting one of these for less than $500,000 by 2011.
Similar lots in southern California (if even available) couldn't be bought for a million dollars today.
Not too far from this coastal paradise, totally undeveloped land on the beach can be had for as little as $800 to $1,800 an acre. Yes, it may take some work to
improve it, but they simply aren't making any more Pacific beachfront and it will never be cheaper than it is right now.
Regards,
Leif Simon,
for The Daily Reckoning
P.S. Spain, Nicaragua, Ireland and South America are only the beginning of the opportunities I'm finding out here today. Panama is another...it has the most
developed infrastructure of any country in Central America. Property values are incredibly low. But dynamic growth is imminent.
Because of capital friendly banking and tax laws that are far superior to better known tax havens, major international corporations are already taking full
advantage of Panama's investment climate.
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