Real estate guide 2008: The exotic play

Tired of high prices? Why not Phuket?

Ronan McMahon spends most of his time trolling the globe for investment opportunities in real estate, and is not a man prone to understatement. Yet, the resident of Waterford, Ireland, declares, “Fortaleza is the best beachfront buy on the planet.” His reasons for being so pumped about Fortaleza, a city of 3.4 million on Brazil’s northeast coast, are simple. It has a tropical climate, white-sand beaches and a cool Latin vibe. Plus, you can still buy an ocean lot for as little as US$16,500, and beachfront condos start at US$67,000.

Best of all, the European development machine, a sophisticated cabal of companies that cut their teeth on the Spanish south coast in the early 1990s by turning a string of sleepy fishing villages along Costa del Sol into a continuous swath of high-rise vacation homes and resorts, is about to land hard in Fortaleza. More recently, the machine has driven the value of real estate through the roof in places such as the Mayan Riviera, Mexico, and the Red Sea coast of Egypt. Now it has Brazil firmly in its sights.

“I’ve seen opportunities like this play out before in Nicaragua’s south Pacific, the beaches of Panama and the Bay Islands of Honduras,” says McMahon, noting European developers already have people quietly snapping up miles of beach property. In three or four years, McMahon, who is managing director of real estate consultancy Pathfinder Ltd., predicts beach properties in Fortaleza will be at least two or three times what they are today.

For Canadians with an above-average appetite for risk, investing in undervalued foreign real estate is an effective way of diversifying assets beyond North America, and enhancing their lifestyles with a second home. McMahon, whose consultancy is affiliated with International Living, which has been matching investors with global real estate opportunities for nearly three decades, says Fortaleza is an example of how investors can profit by getting into a market ahead of the curve. His other golden rules?Buy when everyone else is selling; buy before an isolated region is opened up to the world; and, buy when rising incomes locally create unprecedented demand for home ownership.

McMahon’s other top picks for 2008 include Vieques, a tiny island off the coast of Puerto Rico, the Samana peninsula of the Dominican Republic, Tangiers, Morocco, and pre-construction condos in Bucharest, Romania. Vieques, known locally as Little Girl Island, was until 2003 a weapons testing ground for the U.S. Navy. While the bombing range on the eastern tip of the island is badly contaminated, the rest of the island is pristine and almost entirely undeveloped for tourism. It won’t stay that way for long, says McMahon, noting major hotel companies have already been sniffing around.

Be aware that any real estate play is also affected by the world economy. Howard Levitt, a workplace lawyer with Lang Michener in Toronto, concedes the U.S. recession has hurt the value of his $500,000 investment in a Nicaraguan beachfront property and house made in 2004, but he has no regrets. “That only matters when you sell,” says Levitt, who rents his 3,500-square-foot, Spanish-style hacienda, complete with a 120-foot infinity pool, for $2,000 per week. “This is a tremendous time for Canadians to diversify their assets by investing in currencies that are counter-cyclical to the Canadian economy.” He suggests parlaying the loonie’s recent gains into real estate in Southeast Asia and the Balkans.

Lief Simon, a Paris-based real estate consultant and conference organizer, looks for one of two conditions when scouting investment opportunities: a market distortion such as the financial crisis that happened in Argentina in 2001, or a chance to follow the path of progress to destinations like the Mayan Riviera. The trick is to get in as early as possible, because most opportunities only have a three-year window. The market catches fire in the first half of the window, and stabilizes in the second.

Simon’s best bet for 2008 is Boracay — a tropical island in the Philippines located 315 kilometres south of the capital, Manila — which he describes as the next Phuket. (Phuket, Thailand, is Southeast Asia’s top tourism destination for sea, sand and sun holidays.) Hong Kong investors have already begun acquiring property on this remote island, where luxury condos sell for US$100,000. Simon also recommends Cambodia’s Gulf of Thailand coast, coastal developments near Piriápolis, Uruguay, and mountain properties in Panama.

Investing in such distant real-estate markets may seem a little daunting. But Simon says equity markets make him more nervous than foreign real estate. He also stresses that prospective buyers should get to know a destination before making a purchase, noting, “If you get a bad feeling, don’t invest.”