What can we learn from emerging markets from the past?

by Ray Clancy on November 6, 2008

Can we learn from new developed markets?Over the last decade there have been a number of new emerging markets in the property sector many of which have gone on to become developed markets, some have struggled and others have actually disappeared. So what can we learn from the emerging market boom and bust of the past, how can we translate this into the future and can we be certain that the property investment community will learn lessons from the past.

The international property market has grown exponentially over the last decade with new and emerging markets appearing almost on a monthly basis. However, while there are many similarities as to why these markets may have come to the attention of the international property investors, they very often have different underlying elements which have dictated whether they go on to be successful, stagnate or collapse.

Let us take a look at a few of the more recent emerging markets and see what we can learn from them:-

Russian property market

If there has ever been a more controversial property market in the world then we would be very surprised indeed. While we have seen the Russian property headlines with literally billions upon billions of dollars changing hands a closer look at the situation reveals that this new-found wealth is centred upon a very small number of investors and well-connected figures.

It is well-known that corruption even now in the Russian government is rife, something which has seen many dubious property deals come to the fore with many third parties (often connected) making substantial amounts of money. However, the headline grabbing numbers have attracted a number of international property investors and while some have done their homework prior to entry many have suffered at the hands of what is still a very strict regime. In essence Russia has a part capitalist economy within a communist country even though this is a contradiction in terms.

Many business and property investors have seen their assets stripped away or acquired by the state for sub-market compensation. While it would be wrong to say this has happens all over the country it is not as uncommon as many investors may be led to believe.

Lessons to learn :- monitor government intervention, is the new-found wealth spread across the country, what legal rights do you have as an overseas investor.

Dubai property market

While the Dubai market may well be softening at the moment it has and continues to be one of the more successful emerging markets of the last decade. While this growth in international property investment may well surprise many from a country which is renowned for its connections with the oil world the government in the area have been very calculated in their approach.

Conscious that the additional funding which has rolled into the country from the oil markets was needed to expand and grow the attractions of the United Arab Emirates the authorities have undergone a major internal investment program into property, business and tourism operations. While this has led to a massive increase in property prices and interest from overseas there has been a degree of complacency and suggestions that the local economy could buck the trend of the worldwide economy forever. While prices have been softening of late the realisation that the market is not immune has caught out a number of investors, although a correction to the buoyant property market is actually beneficial in the medium to longer term.

Lessons to learn :- no property market in the world is totally immune from the trend in the worldwide economy, internal government investment is often a very good sign of things to come, tourism is a very useful tool to attract visitors and international investors.

The Caribbean property market

While the Caribbean in many ways is not a new property market, there are some underlying emerging markets which have done very well over the last few years. However, many of these smaller markets are of a size which means they can be unduly influenced by events such as natural disasters (hurricanes, etc) and the knock-on effect from the home market of international investors.

While areas such as Jamaica and Trinidad and Tobago property markets have been active for some time many of the smaller islands are still very much in their infancy stage. It is vital that overseas investors research these markets thoroughly as without any form of substantial domestic demand they will be left to the whim of the international investment community to a very large degree. However, because of their size many of the smaller markets have bounced back quickly from any major setbacks with the tourist market pushed to the forefront.

Lessons to learn :- the smaller the property market the more risk on the downside and potential benefits on the upside, natural disasters can influence local property markets to a great extent, over dependence on the tourist market is also a very risky game to play.

Emerging markets in general

As we have covered above, no emerging market is exactly the same as any other and they all have different elements which need to be taken into account, different risks and different strengths in depth. In order for any one property market to move from the emerging stage to the developed stage there needs to be some underlying degree of security in whatever form this may be.

While it would be wrong to say that many property investors have not made money on small property markets these are investments where timing is essential and if you miscalculate your purchase you can be in serious trouble. There is also the risk of holding onto any one investment for too long only to see investors sell up, move elsewhere and reduce the level of buying interest in the market – which obviously has a knock-on effect to prices.

There are lessons to be learnt from each and every successful and unsuccessful emerging property market and if you are able to put these lessons to good use you will have the opportunity to improve your timing, your skill at spotting a market and your ability to eventually plan your exit route well in advance. The moment you stop learning about properly investment is the day that your level of success will peak.

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