Real Estate Markets in North America

North America is in the Earth’s northern and almost fully in the western hemispheres. It is the third largest continent, after Asia and Africa. According to some authorities, North America begins not at the Isthmus of Panama, but at the Isthmus of Tehuantepec, with the intervening region called Central America (or Middle America if the Caribbean is included) and resting on the Caribbean Plate. Before the Central American isthmus was raised, the region had been underwater. The islands of the West Indies delineate a submerged former land bridge, which had connected North America and South America via Florida. The term “Anglo-America” is frequently used in reference to Canada and the United States combined, while the term “Middle America” is used to describe the region including Mexico, the republics of Central America and the Caribbean.
The real estate market in Canada is strong and has seen significant growth and positive development since 2000. The levels of growth in real estates in Canada have slowed down since the start of 2004 but are not expected to decline significantly. As the general wealth and GDP of Canada’s citizens has grown, the real estate market has grown potentially as well.
The real estate market is supported by rising personal income, higher levels of affordability and people’s desire to own rather than rent – add to this fact that the global stock markets have failed to produce expected returns in recent years and that the risks associated with investing in financial instruments are significantly higher than risks associated with real estate investments, and it is obvious why the house buying market in Canada is big business and the Canadian real estate market is so strong.
As to the situation in the United States, investors should be on guard, because according to Michael Power who is a strategist at Investec Asset Management, there is currently a large bubble in the real estate market there, and if it bursts it could have repercussions for the global economy. US house prices have risen by an average of 13.4 percent till the end of 2005, and in some areas even by more than 25 percent. Las Vegas currently has the hottest real estate market in the US and prices there are up 33 percent on a year ago.
The value of new and existing home sales has increased by 280 percent in eight years. Home prices have increased mainly because the real cost of borrowing has remained low, Power says. However, prices have also been driven up by politically expedient tax cuts, the 1997 relaxation of capital gains tax on real estate sales and “a slew of creative financing schemes”, which have made it easier for buyers with very little equity to enter the house market. Home loan or mortgage companies are offering loans equal to 125 percent of the value of the real estate, and mortgages are being extended to Americans with bad credit records, he says. An indication of how hot real estate in the US is, is the fact that more than 40 percent of the properties traded are bought and sold before they have been built. When owners move into a new real estate, they may be the first occupants, but the fourth owner. Alan Greenspan, the chairman of the US Federal Reserve, is in denial about a national house price bubble, referring to “signs of froth in some local markets where home prices seem to have risen to unsustainable levels and a lot of local bubbles”.
Buying property in Mexico, whether it is land, a serviced apartment or a house, can offer good value for money in comparison to prices in the US, although prices in some areas have risen dramatically in recent years and care should be taken in assessing a property’s true value. Mexico’s land costs can be lower, building and maintenance is cheaper, cost of ownership (taxes, utilities) is very low, and although there are “horror” stories associated with buying real estate there (as in most countries of the world), the overwhelming majority of all real estate deals go through legally and smoothly.
Real estate values in Mexico tend to increase year-on-year, as they do in most places, but in most areas not as significantly as they have risen in US in the last few years. And as with all property the value and appeal of land and real estate in Mexico comes down to three key factors: location, location, location.
However the developed state of local and surrounding infrastructure is also important and not all areas are well developed. Mexico is a vas country and not all of it is easily accessible. Road infrastructure is improving every year, with most major places now adequately connected, and work countries to connect the more remote areas, but this will take time.
The Carribean region is made of many diverse countries and islands that have such extremes of economic prosperity and political stability, so the investment opportunities available to a real estate investor across the Caribbean region are broad. But the property investor merely has to target a Caribbean investment based upon his budget.
As the space on which developers can build tourism facilities and residential property is physically restricted on an island and in a small country, so the potential for a growth in the supply of property is severely restricted – especially in the most desirable areas of the most popular countries.
Demand is already outstripping supply in many Caribbean countries and this situation will only naturally intensify which naturally creates unstoppable property price inflation. Markets that are already popular with the rich and famous will be more expensive but less risky, markets that are as yet unfashionable may present an emerging market opportunity where an investor can buy low and wait for demand to surge and prices to rise.