International Real Estate as a Portfolio Hedge

It’s easy to take for granted the scope of “international real estate,” which lumps all the real estate markets of the world—193 countries, to be exact—into a single category of three words. While we recognize that a detailed guide to investing in international real estate could easily fill a book, www.soharworldhomes.com has managed to summarize some of the basics into a short list of what investors should know before venturing into foreign real estate.

1. International real estate investment can offer excellent diversification of assets Investment in international real estate offers diversification, which is “a superior investment style,” according to Les Sohar, founder of soharworldhomes.com. Diversification effectively distributes risk among multiple markets and can optimize potential for return. Because real estate market trends are cyclic, “There may have a down-cycle in the United States, but there are excellent opportunities in South America, Europe or elsewhere and are in the beginning of an up-cycle,” Les Sohar, of Re/Max an International Real Estate specialist. Real Estate investors usually need a large amount of capital in order to acquire and maintain a global portfolio, according to Sohar. However, small investors have the opportunity to diversify their assets on a microcosmic level, such as purchasing residential property in markets that show considerable potential for upward growth.
2. Currency exchange rates can enhance or impede profit margins International Real Estate investment essentially combines property two types of assets: property and foreign currency. The value of a foreign currency can profoundly affect the amount of return made on an investment, as it increases or decreases relative to the U.S. dollar. For example, a small office building in Europe worth €1 million six years ago would have equated to $920,000 U.S. dollars, when the Euro traded at 0.92 Euros to the dollar. Since then, any appreciation in the building’s value might have been compounded or negated by changes in exchange rate. In this case, the exchange rate would have added to the returns: With an appreciation of 10 percent, the newly valued €1.1 million office building would be worth $1.65 million— almost twice its original value in U.S. dollars. Foreign real estate investment mixes property and currency conversely, a strengthening dollar may slow down appreciation in a European property. Experts intuit that the value of the dollar may be at a cyclical low, and may soon begin to climb again.
3. Legal technicalities (or the lack thereof) may increase risk navigating the legal landscape of a foreign Real Estate market can be daunting, especially in developing countries that have only recently opened their property markets to limited foreign investment. For markets in China and Southeast Asia, for instance, foreign investment and real estate ownership laws are changed or added rapidly, as their respective governments try to stabilize their growth. Some countries, such as Vietnam, limit the amount of currency that can leave their borders.
4. Foreign investment opportunities abound in Latin America. American investors can take advantage of a broad range of foreign real estate investment opportunities without leaving the Americas. Latin American real estate markets can be especially favorable, offering affordable property prices, government initiatives meant to attract foreign capital and exotic, beautiful landscapes, without having to traverse more than three time zones. “I think South America is highly overlooked and underrated,” Sohar said. “We produce a global office report...and it’s remarkable to me how transformed most of those markets are in a relatively short period of time.” In the course of three to four years, for instance, vacancy rates shrank from in the mid-teens to less than 5 percent.
5. Working with international real estate professionals is an important first step regardless of the type of investment in foreign real estate, whether it may be in commercial real estate in an emergent economy or a vacation home in Mexico, investors should seek professionals who are knowledgeable about global markets and are well-connected with a network of localized real estate agents. Embarking on one’s own in unfamiliar territory can be a dangerous move. “The devil’s in the details, and I think that’s especially true when you talk about global investment,” Sohar said. soharworldhomes.com, for instance, specializes in International Real Estate, and being a Certified International Property Specialist (CIPS) as well as an International Real Estate Specialist (IRES), the only one with both designations in Canada gives Les Sohar an incredible edge for for investors looking at Canada and Canadians looking elswhere.