Thirty years ago, I flirted with the idea of buying a townhouse in Paddington, Sydney. The price tag was $90,000. On the verge of snapping it up, I decided it was too much of a stretch at the time.
It’s hard not to think about the $2 odd million that would be mine if I had purchased that townhouse and sold it today. Chances are, many of you have passed on a lucrative deal in the past few decades. You know the feeling. Why didn’t I buy when I had the chance? Why didn’t I invest in Apple, Facebook and Twitter while I was at it?
If it’s any comfort, the opportunities are still out there. Cheap property in Sydney may be a quaint chapter in history, but there is fertile ground elsewhere. Savvy investors are always asking themselves: Where in the world will property that’s worth $100,000 today be worth $1,000,000 in ten years? Where are the blind spots, the growth areas that people either haven’t seen or don’t want to look?
Investing in a luxury holiday resort in Mogadishu, or purchasing a new apartment in Abuja, may sound like a long shot or even a foolish gambit. But recent reports suggest that Somalia and Nigeria are set to boom in coming decades due to changing demographics. Somalia’s beaches have proximity to Asia, while Nigeria is the soon-to-be third largest country in the world.
Indeed, by 2030 the Asian middle classes will total over 3 billion people. That’s a six-fold growth in the next fifteen years. Where will all these people vacation, invest, travel?
It’s a question of where the money is going to flow tomorrow—not today. Nobody prefers to wait decades for a return, but real estate is a long-term game. There is no shortage of smaller investors who bought up property years ago in unfashionable areas and are now millionnaires. The smart money goes hunting before anyone else. It looks for demand drivers that will generate interest in years to come.
When I am asked to assess the viability of a new hotel, one of the first things I do is consider those demand drivers. Who will want to stay there in the future? Developing in areas that are already popular and developed is a tough proposition. The cost of land and construction can be astronomical.
Clever developers look to land-bank in areas of future demand, relying on a range of indicators as to where that will be. The audacious ones don’t just buy the land—they build something unique to attract buyers and investors. It’s like that old Kevin Costner movie, Field of Dreams: “If you build it, they will come.” MONA in Hobart is a classic example of destination real estate that has turned a city around.
There is, of course, no magic formula for finding the next big winner in real estate development. But there are ways to plug in, read the signs and stay ahead of the curve.
Stick with Quality. The old saying is that the bitterness of poor quality remains long after the sweetness of low price is forgotten. This is doubly true in real estate. There are many short-term developers out there, in terms of both construction time and building quality, who shine bright for a moment and then collapse.
Long-term success doesn’t always mean turning your gaze toward exotic growth zones like Somalia and Nigeria. There are opportunities nearby as well. Whatever the scope of your real estate ambitions, the important bit is that you stay in for the long haul, keep yourself informed, and see the forest for the trees. Do that, and you may well find yourself the owner of beautiful Mogadishu beach hut. Fe Sehetak!
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