Transparent Global Real Estate Analysis

Posted by Pat Kitano at 1/11/2007 11:44 AM
Categories: Global Real Estate, Real Estate Economics, Transparency



Following up on my post on how South Korean government policy is adversely affecting its housing market, I came across Global Property Guide ("GPG") from a kind referral by its publisher Matthew Montagu-Pollock. This is a statistics filled site that analyzes property markets by country and explains how government policy, market forces and culture affect housing. GPG serves an invaluable resource towards taking steps in creating standards in investment protocol across the global marketplace.

Here are a few intriguing examples of their work:

1) How to Spot Housing Market Bubbles

Using four criteria below, GPG sets financial standards for home price evaluation:
  • Price to Rent Ratio (or Yield) - Analogous to the Price to Earnings ratio commonly used for evaluating stock prices, this index in essence measures the ratio between financing costs and gross rental income, or more simply are rental investments "cash positive" or "cash negative"?
    •
  • Relative Prices -  Moscow's real estate prices are dramatically higher than anywhere in Eastern Europe, yet their standards of living are similar... these anomalies are factored.
  • Affordability - How much housing can an average paycheck afford? In Europe, a rich country like Belgium have housing prices similar to those in Eastern Europe and could be considered higher potential investment market.
  • Price to Replacement Cost - Developers build houses when housing prices are higher than building costs. However, runups in housing prices as seen in the US sparked building activity resulting in surplus inventory that, as cycles go, places downward pressure on prices. Governments like France with institutionalized building restrictions that limit housing supply will generally keep housing prices above construction costs.

    • Here's one of several graphs that suggest Eastern Europe has attractive yields for investment purposes:

    EASTERN EUROPE YIELDS ARE HIGH


    2) Housing Sales and Rental Markets in Asia

    Asia's housing markets differ widely because of various, sometimes peculiar, economic systems and government policies. A key factor in the affordability of housing lies with real estate transaction costs. GPG demonstrates that countries with high transaction costs also have relatively high proportions of slum dwellers.



    South Korea has institutionally been relying on elevated transaction costs to suppress housing price appreciation, but the policy has proven to have stymied construction and paradoxically the short supply has accelerated appreciation. This chart shows that South Korea, the world's second most broadband enabled country surprisingly has a high slum dweller population.



    3) The Rise of the Left - the Fall of Real Estate?

    Latin America's housing markets are directly impacted by their governments, ranging from:
    • those emerging into transparency - Mexico, Costa Rica, Panama - due to their initiatives to attract US real estate investors.
    • those with leftist governments - Venezuela, Ecuador and Bolivia - fueled by Hugo Chavez's anti-American rejection of capitalism.
    • those moderately in between - the rest of Latin America.
    GPG explains why politics and housing is so intertwined:

    Why is Latin America vulnerable to periodic waves of populist leftism? The answer is simple: Inequality levels in Latin American countries are among the highest in the world, and its political cultures are structurally undemocratic. Political and economic elites dominate the system, the descendants of the colonizers.

    Inequality in Latin America fuels social tensions and makes people susceptible to empty promises of dole-outs from populist candidates. The mestizo elite are associated with free-market capitalism and globalization, which thus becomes an ideological target of leftists and socialists in their rise to power.

    The widening gap between the rich and the poor is especially pronounced in housing. Latin America’s central business districts are typically surrounded by slum communities. The percentage of urban populations living in slums is very high, peaking at 81% in Nicaragua.

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    Related articles:

    Government policy vs. the Market - who wins?
    Viewr.com - Beautiful Global Real Estate Listings
    Transparent Mexico Real Estate
    Where would you rather live? - Comparing Moscow and NYC


     

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    • 1/11/2007 2:42 PM geno petro wrote:
      Hey Pat, very insightful. You know, like many people I've been to Costa Rica, Mexico, Panama, the Caribbean, Europe etc and as far as I've been able to tell, anything I would be interested in buying still costs over a half million US dollars. I hear that that under the Three Mile Bridge' at Lagos, Africa is pretty cheap, though.
      Reply to this
      1. 1/11/2007 4:33 PM Pat Kitano wrote:
        Geno, you've been looking for land in all the wrong places, try the heartland of Romania for the real deals...

        Reply to this




    • 1/11/2007 3:19 PM Michael P. Schnabel wrote:
      Excelent article. I would like to provide a link to it on my web site www.miamiflorida.com

      Your thoughts?
      Reply to this
      1. 1/11/2007 4:31 PM Pat Kitano wrote:
        ok by me Michael...

        Reply to this





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