Article: Housing Investments in Turkey, UAE, Dominican Republic, Panama

Top 4: Real Estate 2020

General view of the construction site of Burj al-Babas, a house compound with castle type design, is seen near Mudurnu a town in Bolu province, Turkey January 30, 2019. REUTERS/Umit Bektas
Property ownership by foreigners supercharges the real-estate market in many sun-drenched developing nations, but there is a downside.

There are always people with some hard-earned savings considering buying property in a booming overseas market.

After all, there's no shortage of stories in the real-estate business about enterprising individuals who saw the opportunity in Dubai's housing market around the turn of the millennium, took their chance, and made considerable profit.

There are also those who, living in a less sunny land and leading stressful lives, have always cherished the idea of someday escaping to somewhere tropical or Mediterranean.

To serve these two categories of buyers, a few countries in the developing world have made real-estate ownership for foreigners as straightforward as possible, attracting customers from across the world.

The UAE

The UAE, and the city of Dubai in particular, have been on the radar of property investors for around three decades now.

After establishing itself as a global business hub, the UAE has become a melting pot of expats from the East and the West, and Emirati laws have facilitated property ownership for foreigners as a result.

“Foreign ownership is permitted in areas designated as freehold. Foreigners and expatriate residents may acquire freehold ownership rights over property without restriction, usufruct rights, or leasehold rights for up to 99 years," according to real-estate laws in the Emirate of Dubai.

The real estate market in Dubai has been stalling for some time due to oversupply in the 2010s, but there is hope that the EXPO 2020 will kick-start another period of growth.

The Dominican Republic

Thousands of miles away, the Dominican Republic is also trying to sell real-estate to foreigners, capitalizing on its tropical weather and warm ocean beaches.

After all, international property buyers have always been drawn to sun-soaked lands—President Trump's offer to purchase ice-covered Greenland notwithstanding.

Unlike the UAE, the Dominican Republic is not a major business hub, but it has established itself in recent years as a Caribbean resort destination, mainly frequented by Americans (38.7%) and Canadians (15.4%).

Thanks to the absence of any legal restrictions on property ownership by foreigners, some North Americans who take a liking to the country on their visits as tourists eventually end up buying a second home on the island.

Many gated residential communities under construction in La Romana, Punta Cana, and Puerto Plata in 2019 were targeted at American customers.

The prices are currently low—at USD800-1200 per sqm—but they already show growth compared to 1Q2019, and may go further up if the demand spikes.

Panama

Panama is also popular with international investors for much the same reasons as the Dominican Republic: tropical charm and proximity to North America.

Property in Panama City is a touch more expensive than the Dominican Republic, as the city is home to expats involved in the shipping industry.

And prices are on the rise: luxury waterfront skyscrapers overlooking the ocean in Punta Pacifica are gaining in value by 6-12% each year.

Turkey

Turkey is a newcomer to the club of developing nations selling property to non-citizens. The country's attractions—particularly along its western coast—include a temperate climate and the nation's location between Asia and Europe.

Since 2018, Turkey has been offering an extra incentive to international buyers. Purchasing a house valued at USD250,000 or more will speed up the path to acquiring citizenship, practically guaranteeing a Turkish passport for most nationalities.

Purchases made by foreigners formed around 4% of Turkey's real-estate market in 2019, up from 1% in 2013.

This initiative has found favor with the more solvent citizens of countries bordering Turkey. In 2018 Iraqis bought over 8,000 houses in Turkey, followed by Iranians (3,652), Saudi Arabians (2,718), and Russians (2,297).

One more thing!

There is an old conundrum in the real-estate business: as the construction of buildings cannot take place in real-time and in response to demand, there is always a lag between supply and demand.

This delay in supply leads to a cyclical market behavior. When the housing market shows signs of growing, developers start a large number of projects in the heat of the moment.

Because different developers may act on the same optimistic rationale, however, there is often a period of oversupply and stagnation roughly two to four years following each boom.

There are two different sweet points in the cycle depending on whether one is standing on the supply side or the demand side.

While individual buyers will benefit from periods of oversupply, they are highly toxic for the larger economy, the financiers, and real-estate developers.

The UAE is on the brink of an oversupply right now, as Hussain Sajwani, the Emirati real-estate magnate and chairman of DAMAC Properties, warned the world in December 2019.

Advising fellow developers to overcome greed, Sajwani told CNBC that, “You reach a time in the curve where you need to slow down," implying that otherwise Dubai's housing sector will suffer.

The same threat may befall the housing markets of Turkey, the Dominican Republic, and Panama if the current growth opportunities are overestimated.

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