Why Invest in Property Worldwide?

by Rob Gorle

The world is the property investor's oyster. Housing is a basic need. In every country in the world people need somewhere to live. As the economies move in the various countries, so the property values change. This gives lots of scope to the property investor who is prepared to take a global view. But as property investors we're not really after oysters, we're after pearls.

One of our strengths at Giroma is our contact base. I've lived on four continents, and consequently have contacts in quite a few places. This year, in addition to the UK, we've been in touch with people developing property in Australia and the USA - both places where there are good investment opportunities if you know where to look.

In fact, after talking to contacts in the US earlier this year, we bought three properties off plan in Arizona.

Why Arizona? Let me explain. Like the UK, the States has experienced several years of rapidly rising real estate values. A quick look at a map shows that the big leaps in property value have been in clearly defined areas. Notably in California, Florida, parts of the East Coast, etc. According to a recent Fortune article, property in some of these areas are now overvalued by up to 30%.

If you look at what has happened in the UK you will notice that as property values soar in one area there is a sort of fall-out (sometimes called 'the ripple effect') which sees property adjacent to the 'hot spot' rising in value as well.

This makes good sense in practical terms. When property values leap up in a city like Cardiff, for example, there will be a group of people who are 'pushed out'. They work in Cardiff, their friends and social life are in Cardiff, and they like the city. As it becomes more expensive to live in the city they start to weigh up the various aspects of their lives.

When it becomes more desirable to live outside of the city than to stay in it people will move out. They will face a longer commute to work on the one hand if they can gain a better life-style on the other. Factors that come into the balance include: lower house prices, more spacious housing, cleaner air, more child-friendly neighbourhoods, better health care, good schools, etc.

In the UK property investors have made money by recognising and taking advantage of the ripple effect. This effect works in the rest of the world too - which brings me back to Arizona.

As Californian property prices have zoomed skyward people have moved out of the major cities - some of them prepared to commute 200 miles a day to keep their jobs in the city but enjoy home-ownership in more affordable locations.

But 200 miles a day is a lot of time on the road. So what if there was a place with a hot climate, plentiful jobs, the booming frontier feel that used to make California so exciting, and cheap real estate thrown in as well? Would people move there? You betcha.

Yes, they're moving to Arizona. While property values in Oregon - one state north of California - have been static for years, in Arizona - one state east - they've risen 10% or more year on year for the last five years.

This year Phoenix became the fifth largest city in the USA.

When I was there in April I saw a lot of new housing developments in progress. Now being the States they don't do things by half. In Phoenix when they build a new housing development they build all the infrasctructure as well. Hospitals, schools, shopping centres, swimming pools, golf courses, leisure facilities all go into the area and of course there are big fat roads linking onto the main arteries that feed life into downtown Phoenix.

Giroma bought into one such development. It's a gated community with its own swimming pool and pool house, next to a golf course, with primary schools nearby and a secondary school not more than a mile away. There's a new hospital and medical centre just down the road and of course shopping centres and other leisure facilities to go with it. Just across the way there are plans to build a theme park that is expected to pull in tourists and drive up property values in the area. We checked it out and it seemed a good investment opportunity.

What's happened since then? Well, the houses are yet to be built but the prices off plan have changed. What cost $199,900 in May is now (September) on offer at $211,900. The smaller residence we bought for $167,900 is now being sold at $179,900. That particular property investment has made a 6% gain in 4 months.

Investing in up-and-coming areas can be lucrative. But we believe there's more to it than just finding an area where property values are said to be about to rise. Political instability, corruption, and shaky economies are danger signs. Big property price hikes based largely or exclusively on a projected tourist trade make us wary. We want to invest in places with a strongly based and growing economy. We want to invest in countries with a history of stable government. We want to invest in places where the local economy supports the level of new housing developments.

Those opportunities do exist, and that's why Giroma invests not only in property in the UK, but also in property worldwide.

Rob Gorle is the Managing Director of Giroma Property Development Ltd.