Where To Invest In Overseas Property For 2016

I’m reviewing investments made in 2015 and making a plan for what I intend to purchase in 2016. Favorite markets for 2015 carry over into the New Year.

In 2015, I bought an apartment in Portugal’s Algarve region. Closed on it last month and am working now to get it ready for rental. Prices in Portugal in general and the Algarve in particular were irresistible in 2015. They are firming up, but I expect them to remain appealing in 2016. Rental yields are and will continue strong. The country’s fundamentals support continued growth, and the Algarve continues to compete effectively for expat retirees and year-round vacationers from northern Europe.

In 2016, I plan to expand my focus in this country to include Lisbon along with the Algarve and intend to pick up another apartment for rental.

In Panama this year, we purchased the building that houses our Live and Invest Overseas business and staff. This made sense not only because we’ll be our own tenant but also and more so because commercial and office space in Panama City are the best investment sectors in this market right now. This purchase diversifies my Panama portfolio beyond residential and gives me an expanded stake in one of the markets I’m most bullish on both short and long term. Panama’s economy continues strong, and rental demand, especially commercial, is only going to increase. This market will be a regular focus of my Global Property Advisor service in 2016.

Meantime, residential rentals in Panama City still provide good returns. The market is heating up in the high-end neighborhoods, as prices break through their per-square-meter highs from 2007 and 2008. Rents are keeping up, as residential construction has leveled off in many neighborhoods due to lack of space for new buildings. Punta Pacifica specifically is seeing strong demand.

Agriculture in Panama will also remain a strong buy for 2016. While I continue to look for new agriculture investment options in other countries, Panama has benefits that set it apart. For example, Panama imposes no income tax on agricultural revenue. Plus, a long list of in-demand fruits can be grown in Panama, which is centrally located for shipping to either U.S. coast and to Europe.

Also this year I invested in a condo-hotel unit in a resort on Ambergris Caye. Belize’s tourism draw remains strong; its Caribbean and island coasts offer some of the best diving and snorkeling in the world. Plus, Belize is easily accessible from the United States. Southwest Airlines recognized the opportunity and included Belize as part of its first round of expansion into international service.

I was attracted to the rental condo I chose this year because it’s a fully turnkey option. Also, I like the architectural style of the construction, the vision behind the property, and the fact that it has the support of a major hotel brand. I see this as a good complement to my agricultural investment in Belize’s Cayo District.

While units in the condo-hotel are still available, Belize offers rental opportunities on Ambergris, in the Cayo, and further south in Placencia that will all still make sense in 2016.

Two new markets on my radar for 2016 are Turkey and Argentina. In truth, both have been on my list for some time. I’ve invested in Argentina in the past (post-2001). Recently, it’s been a matter of waiting for a new administration to take office to signal an opportunity to invest again. This has now happened.

I’ve wanted to buy in Turkey for the past three years but haven’t had time to find the right opportunity. This country, especially its capital Istanbul, remains an excellent choice for pre-construction and rental investment. Istanbul’s economics are compelling. This city enjoys a large young population and a growing middle class. The economy is strong, and the housing inventory is undersupplied, both in absolute numbers and from a quality perspective. Much of the current housing isn’t up to modern standards and is expected to be replaced.

With prices for studio and one-bedroom apartments starting at less than US$50,000, appreciation rates in the high teens, and net rental yields as high as 7%, now is the time to buy into Istanbul. I’m determined to take a position in the New Year.

Argentina is a perennial favorite for me. This is a country of charm and character, and Buenos Aires is one of the most interesting cities in the world. This is one of a handful of cities where you can walk the streets in any direction to find something interesting and engaging. The interior of the country offers wine country, skiing, fishing, trekking, biking, and any other outdoor activity you might be interested in.

Now that the country has a new president who looks like he’s going to try to get things back on track economically, I’ll be looking at Buenos Aires for an apartment in 2016. While I expect to be able to find something that makes sense from an investment perspective, I’d be happy to own an apartment in this world-class city again regardless.

The apartment I bought in 2002, in the wake of Argentina’s decoupling from its peg to the U.S. dollar in December of 2001, was a purchase made with friends who decided they wanted to sell in 2008. That turned out to be a good call. We doubled our money on this rental property, from which we had been earning an annual yield of about 6% the years we held it.

Two wild cards for me in 2016 are Brazil and Chile. Each has seen its currency depreciate significantly against the U.S. dollar, making real estate in both a relative bargain.

Brazil prices look good in U.S. dollar terms, but the economy is in recession. It’s a good time to buy, but the question is how long before the economy turns around. With so many good options for 2016, any potential investment in Brazil would have to be a global bargain to get my attention. I’ve found one opportunity that could qualify. I’m sharing details of this with members of my Global Property Advisor service in their January issue.

Chile is a compelling choice for an agricultural investment. The hiccup for me here is the distance. Chile isn’t part of my current circuit, so the only way a property in Chile will find its way into my portfolio is if a truly turnkey offer presents itself. Still, you should consider Chile while dollar prices are a bargain.

A short list of other markets I’m looking at for 2016 includes Uruguay and Mexico, both for agricultural investments.

Lief Simon

“Lief, currently my wife and I live in Medellín, Colombia. We left our New York jobs and rented out our Brooklyn house.

“Managing the Brooklyn house has been difficult. We have had several issues with tenants, including late payments. Although our financing there is cheap, the margin is thin, and it seems like management companies are too expensive. So we were thinking about selling the house and buying vacation rentals to use and rent short term.

“I’m looking for the location with the best vacation rental income, appreciation, and accessibility to us. I was thinking maybe Panama or Dominican Republic. Panama is more accessible to us, but which do you think leads in the other two?

“In order to move forward I would need to expect 10% yield and at least 8% appreciation. Do you expect this to be met in these markets?”

B.M.

An 18% annual return (10% yield and 8% annual appreciation) is a tall order. You’re not likely to achieve that level of return in most markets.

My general yield expectation for residential rental properties is 5% to 8% net. You can get better than 8% in some markets for typically brief periods. However, if you’re enjoying a double-digit yield, it’s likely property values will appreciate, dampening the yields back into the range I expect.

That said, I think double-digit yields are possible in the Dominican Republic right now if you buy right. Appreciation should be good in the DR, as well, but I wouldn’t expect 8% per year in most areas.

Panama City yields probably won’t break the 8% mark right now, but appreciation in key neighborhoods could reach double digits each year for the next few years.

The other consideration is hold period. How long do you expect to hold this investment? If it’s a short-term buy, you might consider Panama City, as it has generally a more active market than most of the beach areas in the DR, meaning you might have an easier time finding a buyer when you want one.