Property Frontiers' International Real Estate Outlook for 2007

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2006 has been another formative year for property investment markets, with the likes of Bulgaria and Dubai dominating media coverage and experiencing phenomenal popularity. However, as they edge ever closer to their saturation peaks and 2006 draws to a close, investors are setting their sights on new property markets. With the number of budget airlines escalating, an increasingly wealthy aging population and an escalating number of first time buyers attempting to get their foot on the ladder abroad, sales and growth in international property investment are likely to soar in 2007. Property Frontiers expect that 2007 will also see the market segment between lifestyle and pure investment purchases.

2006 has been another formative year for property investment markets, with the likes of Bulgaria and Dubai dominating media coverage and experiencing phenomenal popularity. However, as they edge ever closer to their saturation peaks and 2006 draws to a close, investors are setting their sights on new property markets. With the number of budget airlines escalating, an increasingly wealthy aging population and an escalating number of first time buyers attempting to get their foot on the ladder abroad, sales and growth in international property investment are likely to soar in 2007. Property Frontiers expect that 2007 will also see the market segment between lifestyle and pure investment purchases.

As previously mentioned, Property Frontiers predicts that next year may pose substantial risks to the popular locations of 2006. The final quarter of next year will see a large proportion of Dubai's off-plan properties complete, adding substantial stock to Dubai's rental market. The current imbalance with limited supply and extensive demand may begin to equalise or even reverse. Much depends on the Emirate's ability to continue attracting expatriate workers and other visitors over the next year. It is possible that the market will absorb the increase in property stock, but equally, the Dubai dream may begin to falter. Investors considering buying in this Arab Emirate should therefore be especially prudent before purchasing.

Similarly, Bulgaria's exclusivity has been somewhat exhausted in the last 12 months. According to A Place in the Sun's Hot Property Index, Bulgaria is now the number one place to invest ahead of both Spain and France. However, questions must be raised about whether Bulgaria has been overdeveloped and how much longer its investment bubble can withstand the market's mounting pressure. We seriously question the market fundamentals in Bulgaria as prices have been pushed excessively high over the last 6 months of 2006. 2007 could well be the year in which a substantial and painful correction occurs.

The investment fever which swamped Bulgaria has however highlighted a region which continues to promise great investment potential -- Eastern Europe. Its relative underdevelopment, low property prices, rapid GDP growth and increasing employment figures mean property values in countries such as Poland are set to rise rapidly over the next few years. Since joining the EU in 2004, FDI in Polish cities has risen continually and a palpable urbanisation ensued. The country currently attracts $6.5 bn of foreign investment per year and, as a result, is now ranked 5th in the World FDI Confidence Index. The rise in FDI is indicative of the country's growing popularity, the confidence investors have in the market and intimates the future strength of Poland's investment market.

Similar trends are likely to occur in Slovakia, Slovenia and the Baltic states. Slovakia, ideally located in Central Europe has one of the fastest-growing economies in the region and was nominated by the World Bank in 2004 as having the most rapidly improving investment climate globally. Real Estate investments in the capital Bratislava are stable and predictable and growth and demand are greater than the national and regional averages. Equally, the Tatras mountain regions offer excellent conditions for growth although at present the letting market is limited to ski resorts. Demand is set to stay higher than supply due to Slovakia's strict protection rules for national park areas which cover much of the country's ski zones

Another area likely to gain increased credibility as an investment hub is Asia. China's status as one of the World's fastest growing economy (economic growth is expected to grow at around 10% per year in the near future) is having a huge knock on affect on various countries around it -- namely Thailand and Malaysia with their rapidly growing middle classes. New areas to watch include Japan which is set to continue on its expansion voyage due to increased investment from small firms which should result in job growth, despite lagging consumption and Vietnam. Vietnam is considered by some to be the new 'emerging China' and will join the WTO on the 11th January next year.

As the third largest economy in the world we expect foreign investment in Germany to flourish next year. Relatively few Germans are home owners and as a result, consistently high rental yields can be counted on especially in the major cities. The full growth potential of the German economy may soon be realised as structural reforms such as Hartz IV are implemented. Germany's GDP should reach 2.5% this year and the OECD estimates that this economic rebound will continue well into 2008 making Germany one of Europe's hottest long-term investment hotspots.

Home to Panama, Costa Rica and Brazil, Central America boasts more of the world's key emerging markets. Brazil especially is of significant interest for investors looking to take advantage of a relatively young market. Goldman Sachs predicts that it will be the world' s fifth largest economy by 2035 and with increasingly frequent direct flights and extensive coastland available for development, Brazil is a very promising investment destination. What is more, the country, now home to a million millionaires, clearly has an increasingly affluent population which is another fact which should appeal to potential investors.

A short journey north from Central America takes us to another large growth market -- The Caribbean. Seen by many as the ultimate lifestyle second home destination, the spice islands are also an exciting investment hotspot with numerous new 5-star hotel and villa complexes being built on previously undeveloped islands such as Grenada and St Lucia.

Despite the complexities and considerations that must be taken into account when investing abroad, the number of opportunities continue to increase. And if investment is all about timing, then this greater choice means that 2007 will offer many opportunities to get your timing just right.

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Emma Holifield
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