The Rise of Global Real Estate Investing

As the world embraces the rise of remote work, digital nomads, and the diminishing of barriers between countries, there's no doubt that global opportunities are becoming more accessible and equitable to people of all nations. This will result in two significant shifts:

1. Global wages will equalize internationally.
   As capital from developed countries increasingly flows to people in developing nations (thanks to the internet making better, more affordable education accessible beyond national borders), demand for Western talent will decline, while demand for more affordable talent in developing countries will increase.
   
2. Demand for global real-estate will equalize internationally.
   As high-earning workers migrate to more affordable countries to save more, and local citizens upskill to compete for specialized remote jobs, all workers will be incentivized to seek out locations that improve their living standards.

By taking advantage of this geographic arbitrage between income levels and cost of living, savvy remote workers can maintain the same salary they earned back home while enjoying a drastically higher quality of life and real purchasing power in their new locale. [makemymove.com]

Cost of living for different international cities (red is more expensive and green is cheaper). [Source: Cost of Living Index 2024 - Numbeo]

Maximizing ROI in Global Real Estate

How do you know if you are making a wise investment?

While ROI (Return on Investment) is traditionally calculated based on acquisition and total value, personal preferences—such as proximity to amenities like the beach or mountains—introduce subjective elements that may influence individual decision-making.

For instance, a person who loves the beach may assign a higher 'perceived value' to a property that is located nearby to one, while someone who prefers the mountains might place a lower 'perceived value' on that same property.

I should also note here that since people are different and therefore have different 'perceived values' for different properties, this creates arbitrage opportunities for savvy investors who theoretically are looking to buy and sell properties without assigning any 'perceived value' to them.

This means that everyone is looking to find the 'best' property that is unique to them for the lowest price. The 'best' property depends on a number of factors but the most important one is...

Location

Location is the reason why apartments in the center of New York go for hundreds of millions of dollars and why apartments in Cairo go for thousands [numbeo.com].

Traditionally, buying property in prime locations was about gaining proximity to better job opportunities, shorter commutes, and access to amenities. However, in today’s digital world, (where remote work and online services have become the norm), location has taken on a different meaning. Now, you can work, order food, connect with friends, and even study at prestigious institutions without having to be located in a specific place. As a result, the perceived value of a property now makes up a greater percentage of its total value than it historically used to.

That being said, there are certain key advantages of location that digitization will never fully replace. These other location-determined differences should always be considered in addition and include (but are not limited to):

• Weather
• Cost of living
• Healthcare
• Cultural and recreational opportunities
• Safety and security
• Environmental quality
• Social environment

Image: House in Cairo vs House in New York.

Economic and political stability

Every two years in September the OECD releases their 'States of Fragility' report. In the next few weeks you will be able to find and read this year's report when it comes out here: [OECD States of Fragility 2024 - link to be added soon].

However, another similar report is the Fragile States Index which offers a comparative analysis of various indicators such as group grievance, economic inequality, brain drain, security, and corruption. Topping off this year at number 1 as the worst place to live is Somalia. However, we want to be looking at countries that are growing quickly and are becoming increasingly stable. Looking at the report, the countries that experienced the biggest positive change since 2023 were Brazil (4.2), Fiji (3.8), and Poland (3.5).

The reason that Brazil has had the greatest year-on-year change is that there has been a significant decline in intense polarization and leading politicians have shown a willingness to collaborate across political lines. Furthermore, major decisions (like Bolsonaro's ban from office) have not led to widespread unrest. Suggesting that Brazil's political landscape is becoming less volatile.

Political stability is crucial for attracting both domestic and foreign investment because it creates a more predictable environment. When a country's political outlook is positive, economic prospects tend to improve as well. Stability allows businesses to plan for the long term, reducing uncertainty and making growth more sustainable. As a result, the risks associated with investing in that country decrease, encouraging greater investment and fostering economic development.

If you can determine which countries will have the biggest changes in their political environments (for the better) you can also determine which countries will offer the highest ROI (for not only property investments, but for all country-specifc assets).

Practical Considerations

What legal requirements must I meet before investing in a property overseas?

This depends on your selected country. From here onwards we will be focusing on South American countries since they offer relatively high standards of living for their cost of living and are well suited for digital nomad-types that can work remotely for companies based in the United States or Europe.

Legal and tax considerations

Every country has its own set of laws regulating foreign ownership of real estate, tax structures, and visa requirements, which can impact your overall ROI.

For example, where some countries may restrict property ownership for non-citizens, or impose higher taxes on foreign investors, others might offer incentives, such as tax breaks or residency programs, to attract foreign capital.

Knowing the legal framework before purchasing can help you to avoid issues later on and ensure that your investment remains profitable. We will be writing future articles to help you navigate through the vast legal frameworks of different countries, but in general, the key things that you should know of your chosen location are:

• Ownership restrictions
• Taxes and fees
• Financing options
• Rental income regulations
• Residency and visa programs

In Brazil, foreign nationals can purchase almost any property with the same rights as Brazilians. Unlike some countries (like Switzerland and New Zealand) which impose stricter regulations on foreign buyers, Brazil and much of South America are actually very welcoming to foreign nationals looking to invest in real estate.

Where should I buy international real estate?

Deciding which property to buy and where is a deeply personal decision. However, a practical approach to get started is to first identify any limitations (individual or regulatory) such as financial capacity and citizenship requirements that may prevent you from purchasing property in a given location. Once you have identified those requirements, you can proceed.

How much money do I need?

The answer to this question is that it depends on where and what you want to buy. Usually the better the location of the property, the greater the cost will be. In a similar fashion, the cost will also increase proportionally to the size of the property. So if you are prepared to purchase a smaller property in a more remote location, you will not need a large sum of money.

Which South American countries can foreigners buy properties in?

Argentina

Foreigners can buy real estate but face restrictions, especially in security areas near borders or around important national defense locations which require prior authorization.

Additionally, there are limits on owning rural land:

• Foreigners may not own more than 15% of rural land.
• Individuals or entities of the same nationality can only own 30% of that 15%.
• No foreigner can own more than 1,000 hectares (10,000 square metres) in core areas or their equivalent elsewhere.
• Foreigners cannot buy rural land with permanent water bodies or near borders.
• A certificate from the Registry of National Rural Land is required before purchase.

Brazil

Foreigners and foreign-controlled Brazilian companies can buy rural land if certain legal requirements are met. These pertain to:

• Location of the property.
• Size of the land.
• Intended use (purchase or lease).
• Authorization from relevant authorities.

Chile

Foreigners can own property, except in areas along national borders, which cannot be acquired by citizens of neighboring countries. The buyer must also obtain a Chilean taxpayer number; which is a simple process.

Colombia

Foreigners are allowed to buy real estate in Colombia, except for vacant lots located at national borders.

Peru

Foreigners have the same property rights as Peruvians, with one exception: they cannot directly or indirectly acquire property (including land, mines, or water sources) within 50 kilometers of the country's borders.

Venezuela

Foreigners generally have the right to own property, except in designated "security zones," which include areas near the sea, lakes, rivers, military facilities, airspace, industrial areas, and infrastructure like pipelines and aqueducts. These require government authorization for property ownership.

Note:

Not all of these countries have desirable or even attractive current real estate environments. For instance, Venezuela's current economic environment is objectively worse than the economic environment of Peru.

Conclusion

By leveraging the benefits of geographic arbitrage, remote workers and global investors alike can capitalize on opportunities in developing markets where cost of living is lower and potential for growth is high.

However, careful consideration must be given to factors such as political and economic stability, legal and tax frameworks, and individual preferences regarding location and lifestyle.

Countries like Brazil, Chile, and Colombia, which offer favorable conditions for foreign buyers, are prime examples of markets with high ROI potential. As global migration patterns continue to shift and economies evolve, the future of real estate investment will be shaped by those who can identify emerging markets and navigate the complex web of legal, financial, and cultural factors.

A well-informed approach, combined with a willingness to adapt to changing global trends, will position savvy investors to take full advantage of the growing international real estate landscape.

Disclaimer

This article is for informational purposes only and should not be considered as financial or legal advice. Investing in real estate, especially in foreign countries, carries risks, and it's important to consult with a qualified financial advisor or legal expert before making any investment decisions.