Since global hot spots including London, New York and Miami have experienced price stagnation or price corrections in the luxury residential real estate sector recently, some investors are looking for emerging markets where they can accept the additional risk for a chance at quicker price growth and steeper long-term price appreciation.
Michael Valdes, the New York-based global vice president of international servicing at Sotheby's International Realty Affiliates LLC, noted that there are, "some interesting places that people may not think about—cities that are a little bit off the radar"—where investors might see the upside they desire.
Dubai and Abu Dhabi in the United Arab Emirates, for instance, have major international appeal because of the influx of commerce, industry and culture, as well as serious local investment in infrastructure. "I see those places as having a strong trajectory," said Mr. Valdes, adding that the tax benefits in these emirates are also a draw for international buyers and investors.
Then there are places undergoing an incredible amount of development today, such as Jakarta in Indonesia and Mumbai in India, which experts say investors should put on their watch lists, along with cities including Jeddah and Riyadh in Saudi Arabia and Manila in the Philippines.
For each of these emerging markets, it’s helpful to consider the current marketplace, investments in infrastructure and culture that might lead to growth, and restrictions and taxes that could impact an investor’s ability to buy in that market.
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Middle East: Invest in Dubai, consider Abu Dhabi and watch Saudi Arabia
When luxury investors consider the Middle East, Dubai is likely the first place to come to mind—and for good reason.
In the past decade, Dubai’s population has exploded from 900,000 to 3.5 million—90% of them expatriates, said Chris Whitehead, the Dubai-based managing director of Gulf Sotheby’s International Realty. In the next few years, the Dubai-based global trade expo, called Expo 2020, is expected to bring in 250,000 more people.
In addition to population growth, Dubai is also undergoing some infrastructure improvements leading up to the expo, such as an expansion of the metro line and the international airport. The emirate is also trying to bring in more "bespoke" luxury brands, Mr. Whitehead said, such as private jets and gyms.
High-net -worth individuals come here to make money and enjoy this lifestyle tax-free, he said. "The healthcare is good, the educational opportunities are good and the infrastructure is good," he said, "plus it’s extremely safe."
While price growth in the luxury sector is flat right now, Mr. Whitehead said, it’s expected to go up by about 1% in 2018, according to Knight Frank’s prime global cities report, and increase by about 10% per year from 2019 through 2021, Mr. Whitehead predicts. "Now is a good time to buy if it’s a long-term purchase," he said.
The Palm Jumeirah—a man-made, tree-shaped island where many luxury residential properties, hotels and brands are located—is the best place to look, Mr. Whitehead said. And the sweet spot for investment, where there’s limited product and increasing demand, are penthouses with 360-degree panoramic views for about AED30 million, or just over US$8 million, Mr. Whitehead said.
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Properties in downtown Dubai, either in or near the Burj Khalifa, which start at about AED10 million (US$2.7 million) are also worth considering, although they’re likely to appreciate more slowly due to their less desirable location, as are properties on new man-made islands that are being constructed in the Arabian Gulf, such as The World Islands—literally a replica of the world, in islands, which aren’t finished yet.
If Dubai is a good spot to invest, Abu Dhabi—another one of the seven emirates—is a place worth considering, Mr. Valdes said, particularly on Saadiyat Island. In this location, cultural centers designed by Pritzker prize winners, including the Louvre Abu Dhabi, the Guggenheim Abu Dhabi and Zayed National Museum, alongside a new NYU campus, have buoyed the property markets resiliency.
"It’s sort of in the middle of nowhere, but it’s now become this amazing, luxurious gathering place," Mr. Valdes said. "Abu Dhabi is attracting a cosmopolitan, global audience into this luxury market," and there are still some great deals there, he said.
Finally, "Saudi Arabia is somewhere to keep an eye on in the future," Mr. Whitehead said, noting that the country intends to build some huge projects soon.
In expectation of this growth, Sotheby’s is opening affiliate offices in the Saudi Arabian cities of Riyadh—located toward the center of the country, but closer to the Persian Gulf—and Jeddah, on the Red Sea in the far West of the country—in early-2018.
There are, however, some restrictions on foreign investment in this country, Mr. Valdes said. But along with Oman and Qatar, it’s still interesting because of the incredible wealth and development in the region.
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Asia: Invest in Jakarta, watch the Philippines
When it comes to emerging markets in Asia, there are few worth considering now, according to market reports from Knight Frank and Savills, and expert interviews.
According to Mr. Valdes, Indonesia—a relatively small country with a population of about 260 million—shows major potential for foreign investors in real estate. And its capital, Jakarta, which is specifically experiencing an influx of development, is an emerging market investors should seriously consider.
"This is a market that we’re very bullish on, and certainly want to participate in in a large way," said Mr. Valdes, noting that Sotheby’s plans to open an office in Jakarta at the end of 2018. "It’s a feeder market to areas like Singapore and Malaysia, so you do see that trifecta of countries investing in one another and really supporting each other’s economy and growth."
Savills’s data supports Mr. Valdes’ claim that Jakarta is poised to become a real player in residential real estate. In their Impacts: The Future of Global Real Estate report, released in late-November, Savills writes that Jakarta has a growing middle class and an emerging economy. It’s also a market where there’s a growing population that’s expected to exceed Tokyo’s by 2027. Because there will be many more young residents aged 15 to 34 in 10 years compared to older residents, aged 50 to 69, the city will likely boast higher education opportunities, as well as innovation and economic growth.
Knight Frank, too, called out Indonesia as a country to watch in their Asia-Pacific Residential Review, noting that this fourth-most populous country in the world presents "huge market potential for residential developers and investors."
Separately, Mr. Valdes notes that the Philippines—traditionally somewhere that Western expats moved for retirement because of the low cost of living—is showing some potential.
"There’s now much better infrastructure in the country and a much better healthcare system than there was in the past," he said. "It’s become a destination where people are looking to invest, and we’ve seen real estate prices rise quite consistently over the last few years." However, he noted that because there’s no real commerce in the Philippines, he would advise investors to watch and wait before they act.
Knight Frank, too, called out the Philippines as a country to keep an eye on, and its capital, Manila, as a global city with exciting growth prospects.
They wrote in a Sept. 28 blog post: "With a population close to 13 million people, Manila lies at the epicenter of the unprecedented growth occurring in the Philippines’ real estate market. Opportunities to invest in property development are amplified by the country’s attractive investment grade rating, high GDP growth rate and strong macroeconomic fundamentals."
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What about India?
Although India has shown tremendous growth, and what Mr. Valdes called almost over development in cities such as Mumbai and Delhi, it’s almost impossible to purchase an investment property in the country, Mr. Valdes said.
That is, unless the investor is a non-resident Indian residing in the U.S., London or elsewhere who wants to purchase a property back in India. "That’s the target market for investment," he said.
Mr. Valdes noted that these potential non-resident Indian investors should keep an eye on how last year’s demonetization efforts are impacting the economy. While this shift initially softened price growth, he’s seen signs that property values in major cities such as Mumbai, Delhi and Goa are on their way back up.
Liam Bailey, Knight Frank’s global head of research, noted in an email that Majiwada-Kasarvadavali in Thane, a city within the Mumbai metropolitan area, is specifically showing some growth since service and high-tech sectors moved in.
A new metro line has also boosted the area’s connectivity to other parts of the city, while an infrastructure investment in good schools and solid healthcare facilities have led the development of high-rise residential projects.
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