The Hype About the Rebounding
American Real
Estate is Misleading!
For 12 consecutive months now, home prices have
risen across the U.S. — a sharp reversal from a real estate crash fueled by two
decades of imprudent Federal Reserve interest-rate policies and four decades of
Congressional mandates that effectively coerced the banking industry into
unsound lending practices. Markets like Phoenix are up more than 23% in the
past year. San Francisco is up nearly 18%. Atlanta, Vegas and L.A. are up 12%
to 15%. Even Miami, where an orgy of
overzealous condo construction sunk banks all the way to Chicago, has seen
prices jump more than 10% over the last year.
Media headlines talk of a return to normalcy in housing. Many highlight the
fact that home-price gains are running at a pace not seen since the fizzing
days of 2006, and that we're in a seller's market once again. I've read
newsletters crowing about the opportunities in U.S. real estate today, and I've
seen newspaper headlines that read, "Now is a great time to buy in (fill
in the blank)."
No
doubt, there are some opportunities in some markets. But to be blunt, American
real estate today isn't nearly as buoyant as it first appears.
You want to know what's really driving the American housing market at the
moment? A handful of well-heeled international investors who want a piece of
America in a few select vacation markets ... and a select group of hedge funds
throwing around billions of dollars.
Foreign buyers now account for 10% of
all real estate sales in America. South Florida these days is overrun by
wealthy buyers from Colombia, Venezuela, Brazil, Argentina — and France —
snapping up condos from Ft. Lauderdale to downtown Miami. Canadian buyers have
been swooping into Florida, Arizona and Chicago. Chinese and Hong Kong buyers
have been grabbing properties along the West Coast and in New York. And Russian
buyers have apparently lost their minds in their eagerness to own a piece of
America ... they're buying prime properties in high-profile states, and
routinely overspending … a setup for future disaster.
Meanwhile, hedge funds pursuing income opportunities in real estate at a time
when traditional income sources — corporate and government bonds, and even
domestic dividend stocks — are running thin. Colony Capital in Santa Monica
last fall dropped $176 million to buy from Fannie Mae 970 homes in foreclosure
in Arizona, California and Nevada. And at one point, New York hedge fund
Blackstone Group was spending as much as $100 million a week on houses around
the country. Blackstone, so far, has snapped up more than $150 million of
property in Tampa Bay, alone, and has spent some $2.5 billion, overall,
grabbing some 16,000 properties in bulk across previously depressed markets,
from Atlanta to Chicago to Southern California.
All of this is a cash market, and it's not indicative of broad-based
housing-price strength. Statistics bear out that fact.
What's
Driving the U.S. Market?
Back in 2002, long before the buy it/flip it
mentality perverted the U.S. housing market, just 14% of property transactions
in Phoenix, for instance, were all-cash deals. Last year, they accounted for
46% of the Phoenix market. In Orlando, all-cash buyers are 53% of the market
today, up from just 10% a decade ago. For all of California — the good parts
and the bad — all-cash transactions are one-third of the market today, double
the average going back to 1991.
A recent National Association of Realtors
survey showed that just five states — Florida, California, Arizona, Texas and
New York, where all the foreigners and hedge funds are active — account for 50%
of all US sales. Moreover, mortgage demand remains decidedly deflated; 75%
of the lending activity that is happening comes from refinancing existing
mortgages. Those plot points tell you that new buyers aren't broadly
rushing into the housing market because they see opportunities or believe in
the future of American real estate. They show only that all-cash buyers are
very active and that existing homeowners — at least those who can qualify — are
simply cutting their cost structure at a time when interest rates are
historically low.
In short: America's post-crash
real-estate rebound isn't built on housing fundamentals like improving
employment and rising wages — both of
those indicators are weak or in decline. Nor is it built atop young
families starting out or expanding families and moving up. It rests
precariously on two fickle groups that can halt their buying at any moment,
taking the sail out of home prices in the markets where they're playing. That
would ripple through the much watched Case-Shiller Home Price Index — which the
cheerleaders on TV point to as proof of housing strength because the index is
rising — leading to another bout of real-estate fear in America.
Thus, U.S. real estate just isn't the
shiny opportunity many think it to be. The downside is staring you in the face
— the exit of foreign buyers and hedge funds — and the upside at this moment is
dubious. Yet, real estate remains at a top.
Rental
Properties Are An Income Machine
Rental property has long been a
great source of income, and that's particularly true at a time when income in
America is effectively extinct. Profit potential clearly exists, if you buy the
right property at the right price and in the right location. Real estate price
movements are largely uncorrelated to stock prices, so property is useful for
diversifying a portfolio. And it's a time-honored way of preserving wealth,
mitigating inflation (which is absolutely baked into our future) and passing
that wealth on to future generations.
But the place to buy property today is where the opportunities are better ...
where the catalyst for price appreciation clearer ... and where you have a
greater ability to protect yourself from all that's wrong with the monetary and
fiscal beliefs that permeate Washington, D.C.
Ghana,
Africa ticks those boxes!
Owning real estate in a place like Ghana offers several sovereign benefits—
namely, offsetting your dollar exposure here at home and providing a quick
escape hatch if ever you want to bolt from America for social or political
reasons or because of Uncle Sam's increasingly
tax-happy grasp. Depending on where you buy, foreign property also
exposes you to economies — like Ghana — growing faster than the U.S., offering
capital-gain potential you won't necessarily find in what promises to be slow
growth in America's debt-addled economy for many years to come.
But unless you plan to move overseas imminently, foreign real estate is, first
and foremost, a means of collecting monthly income — in a foreign currency —
from local renters.
And Ghana’s capital city Accra is a unique, off-the radar, for now, location
to invest. Every time I go visit the
country more and more buildings are popping up, but of course this development
isn’t do to American investors. It seems
as if everyone else in the world knows about Africa, in this case Ghana, but
now those folks here in the US.
Ghana imposes no restrictions on foreign buyers. The purchasing process is
straightforward, and ownership rests with the buyer, not the government,
through leasing arrangements like those in Panama and elsewhere around the
world. Rule of law is strong in Ghana, as is the government, the banking system
and the currency. The population is decidedly turning towards becoming middle-class
and increasingly upwardly mobile because of the demands the emerging-world
economy is putting on Ghana's natural resource industry.
And while property prices had been moving up strongly in recent years, the market is not overvalued ... nor is it
in a bubble.
That's because Ghana is nearly an all-cash market, explaining the stability of
local housing prices and mitigating worries about a bubble. "All-cash" in Ghana's case is
dramatically different than in the U.S. Ghana
has never had a mortgage market; America has been dependent on mortgages
for decades, meaning all-cash in the American market today is an anomaly, a
sign of a fundamentally weak market.
Mortgages in Ghana today make up just 2.5% of local real estate sales, a pittance
when compared to America, where most homeowners rely on lenders to help them
afford a house. But even though a mortgage market exists, you still have to buy
entirely with cash, since Ghana's central bank does not allow foreigners to
purchase real estate using a mortgage.
A small price to pay, though, given that an historical all-cash market offers
real-estate investors a huge benefit — the assurance that you're not buying
into exuberance since all-cash buyers are far less likely to pay inflated prices.
Raising the bid by $10,000 on a house in Ghana costs an all-cash buyer $10,000.
Here in the US, where lenders offer
mortgages of as much as 97% of a home's value, raising the bid by $10,000 cost
a U.S. buyer as little as $300, making it almost painless to push up prices
beyond a home's true value… mente asɛa (do you understand)?
Moreover, the absence of a mortgage culture reduces the likelihood that
real-estate prices tumble in a downturn, since homeowners without a house
payment have little reason to dump their dwellings to reduce their monthly
costs. This makes me much more confident about buying here.
*** I Will never, never, never, ever buy real estate in the
US again.
Ghana's Expanding Wealth Means
Robust Demand for Better Apartments
While
I was in Ghana this past May checking on a few of our projects, I grabbed a
Star beer at an ocean front café with Carlton Owens, general partner at Value
Investment Group Realty, my go-to-guy anytime I want to know anything about
real estate in Ghana.
Of the neighborhoods he and I chatted about, I can say that over the last few
years I have toured all of them and been inside several apartments. Those
apartments are nice, and in many cases with the new and even remodeled older
apartments, they're fitted out at a high-end level. I would have no qualms
living in them with my own family.
Depending on which neighborhood you buy into, you can expect to pay starting
prices at between $200,000 and $450,000. You can, of course, pay up from there.
At the very top end you will find a few penthouses in the $2 million range.
No matter where you buy, you can all but bank on sturdy demand undergirded by
an economy built on rising global demand for oil, natural gas, gold, and food
crops like cocoa, palm nuts, coffee, pineapples and coconuts, which Ghana grows
in abundance. As prices for commodities have risen since 2000, money has flowed
through Ghana. Per-capita income that was $2,200 in 2002 has more than doubled
to nearly $5,000 today. Doesn’t seem
like much in comparison to here in the US, but the influx of foreigners to the
country as perpetuated the countries growth along with the demand of western
style real estate which has made the demand sky-rocket.
The
main advantage of owning real estate in Ghana is that when you rent your
property out to perspective tenants, the
culture is to pay rents in advance.
That’s right … if you sign a two
year lease you must pay the rents for two years in advance. Typical lease agreements are 2-3 years. So, there is no running to the courthouse to
evict your tenants because they decided not to pay their monthly rent like here
in the US. You actually make your money
up front before the tenant even moves in… an
investors dream!
It may be hard to believe, but all cultures aren’t
slave to the banks as we are here in the US.
As income rises, larger numbers of locals have the financial means to rent
instead of living at home with parents. Others do exactly what Americans do
when they're paycheck improves ... they seek out even better apartments. Moreover,
Accra, Ghana is an increasingly popular destination for multinational
companies. Ghana has a number of free-trade zones that have lured international
companies that are relocating managers here. That's helping drive rental
demand, too, particularly along the popular and scenic coastal highway known as
the Labadi Beach Road.
Though most of the neighborhoods butt up against one another, each has unique
characteristics that set it apart. And each is clearly for a different kind of
investor. All the neighborhoods offer opportunity for investors, but I am
focusing on three of them because, to me, they represent Accra's best buys. The
neighborhoods are Osu, LaBadi Beach and East Legon.
 |
| Osu District |
Osu: The
Regentrification Opportunity
The scene: This
up-and-coming Urban district in Accra … it’s Accra’s entertainment district and
will be home to Accra’s new Osu shopping mall, so think of Osu as an
urban-retail-commercial setting now. This has been one of the city's
fastest-growing neighborhoods in recent years where real estate prices have
more than doubled in the past three years because of the high demand for real
estate in this area. It's also where you'll find much of Accra's night life,
with a variety of clubs around where the new Osu shopping mall is being built.
Osu is largely an apartment-only zone, unlike other areas farther west where
residential housing predominates. Here, many of the buildings fall into a
mixed-use category of residential and commercial. You'll find bigger units of
between 1000 and 2,200 square feet along the waterfront, while smaller units of
as little as 500 – 1000 square feet populate Osu's interior.
The market: Because of Accra’s massive traffic problems and the
retail and commercial job growth that's happening in Osu — and because of the
nightlife — the area is gaining in popularity, particularly among a younger
crowd more interested in renting than owning. That younger crowd, however,
tends to focus on the smaller, less costly rental units away from the
shoreline.
The price tag: Apartments around Osu's shopping mall area,
especially those with a coastal view go for between $250,000 and about $350,000
to build or buy — and this is where I see a great opportunity right now for
potential rental income.
The analysis: You will never go wrong owning property in this
area, so long as you don't mind taking
rents in advance. For those who want to own a truly urban rental
property with continuous demand, this is the address where you want to start
your hunt. You can buy an apartment that's move-in ready, but there is a
more-interesting strategy: buying or investing in the construction of
apartments or homes in the $250,000 to $300,000 range and renting them out for
$3000-5000 a month per unit (2 years
lease in advance). In the process, you essentially pay off the cost of building
the property in 3-5 years.
Don’t
believe the demand in this area? Check
out this link from a Chinese company building a development (Chateau Towers) 2
blocks from Osu’s Shopping mall and 3 blocks from a few of VIG’s current
development projects.
Click
on the view floor plans link for pricing.
FYI … since my last visit, over 50% of the units have been sold and the
project hasn’t even been completed yet. That’s the kind of demand in Osu.
Another
opportunity for real-estate investors in Accra is on the coast-line in Labadi
Beach.
 |
| 3rd Floor View of VIG Labadi Project |
Labadi Beach:
Beachfront Living
The scene: This is the
city's most serene address, anchored by numerous brand named hotels and new
construction projects. LaBadi Beach is a
growing coastal district of high-end homes and a limited supply of highend
apartments about 15 minutes from the city center. That makes Labadi Beach a
good choice for any investor with the cash and the desire to own the best view the
city has to offer.
Labadi’s main drag — is lined with high-end hotels with restaurants and shops
sort of similar to South Carolina’s coastal beach cities. The key difference is that the Atlantic Ocean
offers pounding surf while the massively broad Ghanaian coast — up to 140 miles
wide - doesn't. Also, you don’t have to
worry about any hurricanes in Ghana either.
The market: The majority of properties here are houses, with
the small remainder limited to expensive, low-rise apartments in four- to
16-unit buildings that don't exceed three stories in height. And those
apartments are in high demand because of the limited supply and neighborhood
appeal. Expats, executives assigned to Accra and foreigners with wealth wanting
a waterfront view routinely migrate to this area buying and or renting.
The price tag: Apartments here — in the range of 2,200 square
feet — start at about $450,000 and go to $2 million.
You
can buy an apartment that's move-in ready, but there is a more-interesting strategy:
buying or investing in the construction of apartments or homes in the $450,000
to $2 million range and renting them out for $5-7000 a month (2 years lease in
advance). In the process, you essentially pay off the cost of building your
property in 3-7 years.
Don’t
believe the demand in this area? Check
out this link from a European company building a development (LaBeach Towers) 3
miles down the coast from one of VIG’s current development project.
Click
on the link to view floor plans link to view layout. The cheapest priced unit
is $552K “City view” on the 1st floor. But, the most intriguing part is the payment
plan. You must put down 25% up front and then pay 4% monthly until the last 15%
which is due upon completion or Handover of the Unit. As you can see, this is a real estate
investors dream place to develop property… “If
you know about it.” Click on link
below to view pricing and payment options.
FYI
… since my last visit, over 60% of the units in tower one have been sold and
tower isn’t due to be completed until Oct 2013. That’s the kind of demand in Labadi Beach.
The analysis: Just like New
York's Upper East Side will always be in demand, demand will always be strong
in Labadi Beach — if you can find an available apartment. The community just
doesn’t have enough units in the area.
If you have the money to invest in projects or buy your own property, Labadi
Beach is a top-shelf investment. Renters will always come knocking on your door
... and the apartment you own will always retain its value, simply because of
the premier location. And if ever you decide you want to live in Ghana one day,
well you won't find a nicer location in the city to set down new roots.
Another
opportunity for real-estate investors in Accra is across town near Accra’s
international airport inland in East Legon …
 |
| New Construction 5 Bdr hm |
East
Legon: Accra's Uptown District
The scene: Residential
living just minutes from Accra’s International Airport and Accra Central
Shopping Mall. This neighborhood is reflective of what you would expect in a
walkable, uptown residential community environment like Washington D.C.’s Georgetown
district. Mature tree lines shade the streets of East Legon, and vast expanses
of beautiful properties line the neighborhood. For the most part, this is a
neighborhood of mid-to-high scale real estate apartment buildings.
East Legon’s upscale Roy Richester and Mirage Royale hotel are minutes from
East Legon’s Accra Central Mall filled with boutique shops and restaurants in
every price range, from Italian to Chinese to local Ghanaian cuisine sits in
the mall. Essentially, East Legon is the
sophisticated urban sibling of the sophisticated water front residential Labadi
beach area, which we explored earlier.
The market: Robust demand
for rentals will always define East Legon. Ex-pats and Ghanaians returning home
assigned to Accra, who want a residential life instead of the urban life in Osu
land here. Lots of local business owners and others earning larger salaries
flock to this neighborhood as well because of all that it offers and the
convenient access to downtown Accra and the Airport.
The price tag: $350,000 at the low end, and up to about $650,000
— though you can also spend as much as $1 million on a eight-bedroom, 7,000-square-foot
property equipped with security, house servant, landscaper and driver.
The analysis: For those who want to own a truly residential
suburban rental property with continuous demand, this is the address where you
want to start your hunt. You can buy an apartment that's move-in ready, but
there is a more-interesting strategy: buying or investing in the construction
of apartments or homes in the $250,000 to $300,000 range and renting them out
for $3000-5000 a month (2 years lease in advance). In the process, you essentially
pay off the cost of building your property in 3-7 years.
Moreover, because new apartments are better built, have more character and tend
to be about 20% larger, they see very strong rental demand ... meaning you can
also charge higher rents and increase your annual return to more than 12-20%.
The Costs
of Owning Property in Ghana
Rents, like most big-ticket items in Ghana, are usually
priced in U.S. dollars. However, if you want to completely avoid dollar
exposure — one of the key reasons I want to be in foreign rental property — you
can collect rental payments in the local currency “Ghana Cedi”.
As for operational expenses ... here are some
details you should know before you invest.
- Annual property
taxes will cost you about 0%, yes ZERO!.
- Homeowners'
insurance is available and is relatively cheap ... but hardly anyone in Ghana
buys it because all of the construction is brick, stucco, stone and
mortar. There's almost no wood-frame housing, particularly with
apartments, so the risk of fire is slim. Thus, demand for homeowners'
insurance is negligible.
- Ghanaian
VAT (Value Added Taxes) are 12.5% on rents, though with various deductions
and the income received you can get that down to as low 3%.
- Property
management has two costs. You will pay one month's rent when the property
is leased, and then you will pay no more fees for the entire time the same
tenant occupies the apartment. With that fee, the management company will take
care of all your administrative needs such as pay your taxes, handle
issues like plumbing emergencies, and will charge a fee of between 7% and
10% of the cost of the transaction ... so if a plumber charges, say,
US$200, the management company will impose an additional fee of between
$14 and $20. Tenants pay the costs of utilities and any homeowners'
association dues, if any.
I
have traveled all around the world in recent years — Panama to Eastern Europe;
East & West Africa to South America — and just about everywhere I go, I ask
myself two questions: "Could I live here? Would I want to invest
here?"
In most cases, I answer yes to the latter question, but no to the former. Ghana
is one of the few destinations where I can honestly say yes for both.
I realize that rental real estate doesn't necessary have anything to do with
some place being livable, but in a way it does. The way I see it: If I want to
live somewhere, then others probably want to live there too, and that demand
helps keep rental rates and real-estate prices firm. Those are the kinds of
markets where I want to own rental property. Plus, if it's a place I would feel
comfortable living in, then it's a destination to which I know I can retreat if
I ever feel the urge to escape from America.
If you want to explore Ghana's rental real estate for yourself, but can't make
the trip anytime soon, give me a call and I’ll share some videos and pictures of
Ghana to enlighten you to the countries beautiful landscape and investment
opportunities.
G&G
Associates can provide you your Passport to Ghana with details to everything
you need to know about the country and show you why I am so bullish on real
estate, farmland and residency opportunities there. You'll also learn about
other investment opportunities in Ghana as well as see samples of some of the
apartments I've mentioned here.
If you have specific real estate questions, contact me anytime and I’ll provide
more details for you. You can reach me at asar@gngassoc.com or reach me on my cell
at +1-520-360-8120. As I tell anyone who will listen, Ghana is not the typical African
country so many people assume it to be.
Go
check it out for yourself. Go see what Ghana is really like. Go see the
opportunities it has to offer. Go stroll through Accra, Cape Coast, Takoradi,
Kumasi, etc. Go eat at a local restaurant and experience the scrumptious Banku,
Fufu and Joloff Rice. Walk around the neighborhoods and coastline and you will
return, just as I did, amazed at how special the country really is.
And if you spend any time talking to the locals, you will realize that Ghana
truly is a wonderful place and that “GMT” really does mean Ghana Mean Time.
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These posts provide information that may aid financial improvement. The information on this site is provided as opinion and should not be construed as professional legal advice, nor professional financial advice, nor professional tax advice. The end reader is advised to seek professional assistance to address one's particular situation. The posts on this site may be third party information and may not be copyrightwritten by the poster of the information.
