Global: Spotting Industrial Development Hot-Spots with Residential Buy-to-Let Potential

Global: Spotting Industrial Development Hot-Spots with Residential Buy-to-Let Potential

The latest issue of Industry Week included an article by Adrienne Selko on the advantages for companies of investing in newly developing industrial regions at an early stage of their growth in order to secure good sites and well built and well managed plant and warehousing. Does this theme suggest that there is scope for private investors in spotting the up-and-coming places with a view to residential real estate investments?

The July issue of Atlantic Monthly included an excellent assessment by James Fallows of industrialisation in the China’s Guangdong Province. Part of the article is a profile of Irish-born Mr Fixit, Liam Casey, whose business is sourcing suppliers for foreign businesses, at which he is highly skilled. However, although there are commercial real estate opportunities in Guangdong (science and technology parks, for instance), it doesn’t seem as if they will be open to overseas investors for while, and, as for residential developments, Mr Casey has been living in the Sheraton Four Points and other hotels for over 10 years. Although Shenzhen has a buzz, it is not a much loved city, business people visit but donĂ¢’t stay; even the thousands of workers aspire to return to their own region when they’ve made enough money.

One useful for assessing overseas markets are indices of corruption and/or good governance. Good or relatively good scores in these terms would suggest potential for industrial development and property investment possibilities for private investors. A quick check on the World Bank’s ‘Governance Matters’ site shows that China is mainly in the middle range (except when it comes to listening to citizens) and is showing slight improvements in measure such as ‘regulatory quality’ and the control of corruption. Shenzhen’s industrial growth goes back to its establishment as a special economic zone (a government trigger that investors might do well to pay attention to in other parts of the world?), which occurred in 1980.

Possibly, it’s worthwhile looking at some of the countries that Industry Week refers to as investment opportunities; Vietnam (‘playing an increasingly important role in manufacturing, particularly in high tech’) and Botswana ( ‘workforce is educated and the natural resources are abundant’) stand out. Vietnam is roughly the same as the People’s Republic of China in governance terms but Botswana is significantly ahead, particularly in terms of stability and the control of corruption. In fact Botswana would appear to have a better climate for investors than Nicaragua, Panama and Bulgaria to name just a few countries Overseas Property Mall has looked at over the last few months.

First, Vietnam where the state owns all land but permits citizens to hold freehold rights in perpetuity. Resident non-nationals are to be permitted to buy and sell houses on 50 year leases and to use these properties as collateral for bank loans.

However, they will not be permitted to let these properties. There are currently 81,000 expatriates living in the country and housing costs are significant. Vietnam attracted over $10bn’s worth of foreign direct investment in 2006, much of it destined for commercial real estate developments. Ho Chi Minh city’s Investment and Trade Promotion Centre plans to hold a workshop on Vietnam’s real estate market in Singapore on August 13-14 to showcase its potential to international investors.

Botswana not only has the best performing, most competitive economy in Africa the government is currently considering a new foreign direct investment strategy. According to the International Country Risk Guide Botswana (and Namibia) score highest for respect for property rights in sub-Saharan Africa. In addition to the country’s tourist potential it is also hoping to develop as a call centre centre. Botswana’s mining industry and huge mineral potential and international financial services should also contribute to a pool of well-paid professionals impacting the property market.

There are no exchange controls and mortgages are available. For non-direct investments a company like Turnstar offers an alternative route to the Botswana property market. In addition to the country’s own real estate potential Botswana companies such as RDCP are active in property investments in other parts of Africa.

Finally, and staying in Africa, it’s just over one year since Lonrho announced the acquisition of 63% of capital of the Luba Freeport in Equitorial Guinea. The feeport acts as hub for the oil industry in the Gulf of Guinea and West Africa (read more here). The region has recently reported major natural finds and is set to become an important supplier to the United States.

Lonrho is already planning a hotel for the port and apartments are also being considered. The aforementioned World bank site marks down Equitorial Guinea as a governance nightmare, so it looks as if one doesn’t want to stray outside the free port. However, the bank also has a ‘Doing Business‘ website where, for example, you can work out how long it will take to buy property there. The property rights index of the Heritage Foundation and the Wall Street Journal is also worth checking.

So, is industrial development a harbinger of real estate opportunities? Probably not. A better strategy might be to keep track of adventurous trading companies to see where they are going and what they are doing. If governance factors suggest that personal direct investment is out of the question, one can always invest in the company instead.