9

FIVE FACTORS MOTIVATING GLOBAL INVESTORS

Is the prospect of a great return what drives all investors? When the investment is real estate, this is certainly one important factor, but far from the complete story. Like other major life decisions, people enter real estate transactions with their own unique set of needs and wants. Here are some of the major factors driving today’s global transactions.

1. Investment Visas visas designed to woo international investors. Some programs sports, health or education; or invest in a new or existing Irish Global investors often look for are structured to attract specific business; or invest in a low-return more than an investment vehicle types of investors, for example five-year immigrant bond; or in when choosing a destination for entrepreneurs, while others seek residential property and a govtheir money. The right to stay cash flow into sectors the govern- ernment bond. However, because and travel in a country for ex- ment most wants to encourage. Ireland is not part of the tended periods is a powerful Countries may require applicants Schengen Agreement its visa only motivator for certain individuals. to meet net worth requirements, offers travel to Ireland and the Many countries recognize this others require certain standards U.K. and have created visa programs of language proficiency and Australia’s investor visa program that offer additional benefits to management experience. is more similar to the U.S. model. foreigners investing in properties or businesses in their countries. A particularly attractive incentive in many Eurozone countries is the In return for a sizable investment in the nation’s economic growth, T h e E B-5 V i s a ability to travel freely in the investors gain residency so they can enjoy the Australian lifestyle Many foreign-born investors Schengen Area, created in 1995 under an agreement signed in and quality of life. would like to live and travel in the U.S. for extended periods, Schengen, Luxembourg. Twenty six European Union countries - 2. Return on Investment but can’t because of visa re- function as a single country for Most investors expect to achieve strictions. The EB-5 visa is a pow- international travel purposes, some level of return on the monerful tool for attracting foreign- creating open common borders. ey they commit. For some, realizborn entrepreneurs and investors Of the Eurozone countries, only ing the greatest return for their who are looking for a fast path the U.K. and Ireland have opted risk preference is the primary toward U.S. citizenship and the out of the agreement. Several purchase driver. Markets across ability to live here on a condi- European nations seeking inter- the globe offer many choices. tional permanent basis. national investment in their deThe program’s central focus is job creation. Foreign-born individuals who can invest $1 million, or as little as $500,000 in some instances, in commercial enterprises that generate at least 10 American jobs over two years can receive a green card. In addition to job creation, the program benefits the U.S. real estate market because EB-5 card holders must pressed property markets have leveraged their rights under the Schengen Agreement to attract global funds. Latvia, Spain and Portugal, for example, either have or are in the process of announcing programs that dictate minimum investments in residential properties for attainment of a visa good throughout the Schengen Area. ROI-driven buyers often look for opportunities in residential properties they can rent year-round including single family homes, condos and townhomes. They may be interested in properties in distressed markets which provide appreciation over short- or medium-term timeframes. Commercial office or retail space in hot or up-and-coming urban areas can offer great returns. Hotels maintain a U.S. residence. Other countries maintain higher and restaurants may appeal to requirements in return for fewer investors with deeper pockets.Investment Visas in Other Coun- benefits. For example, to earn an tries Irish visa you must contribute to a Cambodia, for example, has seen huge increases in foreign Many other countries also offer public project benefiting the arts, direct investment. In fact, last

year Cambodia received more FDI per person than did China. As China’s wages have risen and the labor force has begun shrinking due to the “one child” policy, multinational companies have shifted manufacturing further south to reduce labor costs. People in the Mekong Delta are being lifted out of poverty as employment has grown.

“Phnom Penh is hot right now,” reports Herb Jahnke, a real estate attorney and broker with China United Global Real Estate Group who is seeing large companies snap up space in the center of the city. Cambodia’s rising GDP, expected to grow 7.2 percent in 2013, and inflow from foreign investors is driving supply and demand in the city’s office center. Most space in the city has been Grade C, but developers are working on increasing Grade B space and will soon introduce prime Grade A properties.

Appreciation and income potential are not the only factors determining ROI. Exchange rates can greatly affect expected return depending on which currencies are exchanged between the buyer and seller, and the strength of one currency versus another. In Turkey, it’s common to transact in multiple currencies like euros, dollars, pounds or the Turkish lira.

(continued on page 9)

(continued from page 8)

Buyers and sellers agree to deal joyable, safer and more stable ees to Mexico where they can Status at an Affordable Price in a mutually advantageous cur- can be primary motivations for find great hospitals and quality Immensely popular in the earlyrency instead of being tied to selecting an international desti- medical services at affordable 2000s, fractional ownership proone set of exchange rates. Of nation, particularly during certain prices,” says Linda Neil, ABR, PIC, grams reached a peak of $2.3 course the tax environment also plays heavily into calculating stages of life. For example, mid- President’s Liaison to Mexico, and billion in 2007 but were hit hard expected ROI. Property, income dle-class families looking for co-founder of Mexico’s first es- by the recession. Since then inand estate taxes, as well as the holiday and second homes might crow provider The Settlement vestment has migrated to the top cost of repatriating funds to the be driven by climate, proximity Company® in Michoacan, Mexi- end of the market toward luxury buyer’s home country could make to nice beaches, availability of co. and resort ownership. Latvia more attractive than the U.K., for instance. shopping, entertainment and restaurants, the cost of living, a clean environment and low crime 5. Status For a relatively small investment, a buyer purchases title to a frac3. Higher Education rates. Prestige of location and/or size tion of the ownership in a luxury hotel, resort or development for Wealthy buyers may decide to Russia now has a vast middle of property may be more im- a fixed time. The buyer is part invest in areas where they would class that is investing in interna- portant to some buyers than ROI. owner of a company which owns like their children to go to school. tional real estate. A surge in per- Especially where luxury residenc- the property. Under the fractionFor example, buying a house or sonal income and newly availa- es are concerned, international al ownership agreement, invesa condo for four or more years in ble consumer loans and mortgag- buyers are a significant portion tors can also use the property the depressed American market es has created a group of buyers of the market. annually for vacations, rent out could be a smart move for the that now accounts for the majori- Properties in New York and Lon- their share of time, and can sell parents of an international stu- ty of Russian overseas investment don provide cases in point. The their share of ownership at any dent. They may save on board- transactions (though not total most expensive resale property time. ing expenses while also expecting the property’s value to appreciate. amount invested). The Russian middle class has been primarily interested in holisold in New York last year went to an international buyer for the full asking price of $88 million. “It’s a different concept than a timeshare,” says developer Robin Barrasford of Barrasford and “U.S. universities and colleges day accommodations for family London’s highest price topped Bird Worldwide. “The buyer acare considered among the best in use. In Turkey, Spain, Latvia and New York at $121 million, also tually purchases and has title to the world,” says Jahnke. Bulgaria they are buying flats paid by an overseas buyer. bricks and mortar. They are not “Additionally, the current weak- ranging from $150,000 to Trophy properties in major inter- buying the right to stay in a ness in the dollar may make $500,000 and many seek credit national cities continue to rise in property for fixed time periods schools in the U.S. more attractive from local banks. Quality of life price even when other parts of over a given number of years.” to some buyers.” is a major driver in the decision those markets fall in value. The Understanding International InHowever, price may not even be a consideration for high net worth individuals (HNWIs). Families with several generations of wealth may prefer one school over another simply based on to buy abroad. Russian buyers often look for good climate, vacation or seaside locations, low crime rates and peaceful settings in which they may retire later. Retirees around the world are luxury residential real estate market has followed trends in the luxury goods market, which emerged from the global recession largely unscathed and reaching new heights. vestor’s motivations, including these and other factors, is one way agents with the Certified International Property Specialist (CIPS) designation distinguish themselves on the world stage. As international investments flow to family tradition. Status is another motivated by quality of life fac- There is strong demand for and a worldwide properties from more factor. HNWIs may want their tors. They may be searching for scarcity of high-end inventory in people and more countries than sons or daughters to attend one a location with good weather, the most attractive international ever before, global agents are of the world’s most prestigious services and transportation for cities, the largest of which tend to increasingly likely to discover a universities to help establish their connections within the upper tiers of international society. older adults, a reasonable cost of living, recreation suitable to a less active lifestyle, safe and be at the crossroads of capital, technology and culture. HNWIs buy in these locations for cultural piece of real estate somewhere in the world that may be perfect for a future client. 4. Quality of Life secure properties, and the availability of health care. “Medical and leisure purposes, not appreciation when the property is sold. Click here for more information Factors that make life more en- costs in the U.S. are driving retir-

P a g e 9 September 2013 | San Gabriel Valley Connection