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Zoe Dare Hall asks experienced investors how to make a profit in today's extremely changeable market
There is one kind of climate that few can argue is anything other than dire: the one that stole our summer. But the gloomy economic climate is exposing starker differences in opinion. While cautious investors are spending sleepless nights worrying about household bills, opportunists are rubbing their hands as currencies fall, distressed properties abound and new investment niches open up.

So how do overseas investment specialists make a profit in this changeable market?

What should you look for?
"Remember that there are no quick wins," says Tim Murphy, director of IP Global. "Make sure rental yields are sustainable - so choose cities where people work every day, which have genuine supply and demand, and which have deals purely due to the current state of the economy." Murphy, who is sourcing deals in Los Angeles and Abu Dhabi, adds: "It's amazing to be somewhere like LA and have power as a buyer for once. Five years ago, you would have been at the bottom of a long queue for city-centre apartments. Now you can buy flats in LA for $300,000 (£170,000) that would have cost $450,000 a year ago."

"Abu Dhabi's GDP in the first 48 hours of 2008 was the same as Dubai's in the whole of 2007. There is so much cash there."

Oliver Hickey, European sales director of Profile, also sees major cities as the best investment due to their potential for rental returns and good capital growth. "Dubai is a mid-risk investment. Banks will lend 70 per cent, and a new area, The Waterfront, is already twice the size of Hong Kong and will become the new address to own," he says. Rob Green, director of Cluttons Resorts, tells buyers to scrutinise the developers' funds and track record. He sees branded developments, often with guaranteed rental-pool schemes, as the safest bet. "There is a premium to pay, and emerging destinations will benefit from branding more than established locations. But take Bahia Beach, in Puerto Rico. Prices start at £400,000, and the resort includes St Regis hotel, which will boost buyer confidence in the market." Managed aparthotels in proven tourism markets are where Mark Bingham, managing director of Owner Invest, sees the most secure investment potential. "Royal Suites, in Marbella, sold out in eight weeks. Buyers put minimum cash down and do not start mortgage payments until the hotel opens and generates income."

Currency fluctuations
The pound may be weaker against the euro and dollar, but Green says investors can benefit. "The pound-dollar exchange rate is still attractive, and those wishing to invest overseas may need to move quickly," he says.
"Developers are looking at ways to combat the declining economy. At La Molazul, in Majorca, the euro rate has been frozen at a better rate from last year, while the Banyan Tree, in Bintan, Indonesia, offers 50 per cent stage payments over five years, with no interest on some developments."
Russell Bragg, managing director of Premier Resorts, suggests buyers looking for a home in the Eurozone wait until the UK property market stabilises and the pound recovers. "For investors with euro reserves, this is a great time to pick up bargains in Europe, or especially back in the UK and in the US," he says.
Should you borrow?
Not if you can avoid it, says Green. "Cash is king. We expect 2009 will see many opportunistic buys from cash buyers." Spain has "real bargains", he adds.

Landmark property developments that capture the imagination of the world often signal a property investment hotspot in full swing. Many have marvelled at the engineering feat of Dubai’s manmade Palm Islands and the sheer boldness of building the Petronas Towers in Kuala Lumpur. But, as impressive as these projects are, the nature of a free market means that savvy investors are already looking for the next real estate investment opportunity.

That explains our focus, in this Cityscape special edition, on two of the world’s second-tier property investment destinations: Abu Dhabi and Johor. These regions are perhaps not as globally recognised as their neighbouring success stories, Dubai and Kuala Lumpur, but it is important to remember that cities of the future are running on the steam of today’s already heated markets.

Abu Dhabi, for example, has lain under the radar of property investors despite its immense wealth and growing population. Now that the emirate’s authorities have unveiled a masterplan for development by 2030, the city of Abu Dhabi and its controlled, yet business-friendly approach is set to become a global model for infrastructure and property development. If indicators such as commercial rental growth are anything to go by, Abu Dhabi’s highest global rental growth of 200% in 2006 is a sure sign of things to come.

Though emerging-economy growth is staggering in parts, mature markets such as the London commercial property market remain the most expensive in the world. And this is despite a fall in capital values of about 15% to 20% in the past six months – a price correction that has been exacerbated by the global credit squeeze.

Credit crunch impact
In the residential market, sales in Western economies are feeling the biggest effect of the credit crunch. House sales in Spain in January dropped 27% year on year, according to the National Statistics Institute, in a market where 800,000 homes were planned in 2006 – more than in France, Germany and the UK combined. Spain’s GDP is forecast to grow by 2% this year – half the growth rate in 2006 – demonstrating the danger of an economy based on the construction sector, where oversupply and logistics problems can spell disaster across the wider national economy.

Moving into position
Although the effects of the global financial crisis cannot be underestimated as mature markets freefall, the emerging economies of India, China, south-east Asia and, above all, the Middle East are picking up the slack.

Abu Dhabi is building itself from the ground up with mixed-use projects covering all aspects of urban planning, including cultural, leisure, educational, commercial and industrial developments, all with associated infrastructure. The Abu Dhabi chamber of commerce estimates $140bn will be invested in real estate and construction during the next few years and 150,000 new residential units by 2009 are expected to help supply to catch up with demand; this will be much needed with expectations of a population increase of 6.8% from 1.6 million to 3.4 million by 2015. A dearth of prime office space is likely to keep rents high at least for the short term.

In Asia, Malaysia’s Iskandar Development Region (IDR) in the south of Johor state, is fast becoming a new noteworthy investment destination. The area is expected to attract $3.4bn of FDI this year and will build on capital city Kuala Lumpur’s success as a global investment destination. Iskandar is geographically close to Singapore and on the main trade routes to China and India, and it also offers investors a cost-effective and skilled workforce. GE and Virgin Group have already taken the bait and other global corporations are likely to follow.

Cushman & Wakefield predicts that emerging markets will increase their global share of investment turnover in commercial real estate from 7.3% to 12% this year, and, if India’s growth in IT and financial services and China’s manufacturing record are anything to go by, the prediction is by no means unrealistic.

Hyper-growth economies
According to Cushman & Wakefield president and chief executive Bruce Mosler, many of the firm’s clients are looking at the hyper-growth economies such as India and China. “Growth economies that demonstrate an ability, from a consumer standpoint, to sustain themselves and grow, represent a good investment opportunity for clients looking to balance their portfolios because it’s no longer just about yields,” he says.

Rapid growth, business-friendly environments and the abundance of talent in emerging economies go a long way in attracting foreign investors, but to win investment, a developing region needs an active real estate market. This is because commercial real estate in today’s market is a global asset class competing for investments alongside stocks, bonds and private equity.

While the US and western European real estate markets are slowing down in the wake of a global credit squeeze, growth in emerging markets means investment opportunities are shifting in terms of geography; but the good news is that they are not disappearing altogether."