Profiting From a Hedge City By Ted Baumann, Offshore and Asset Protection Editor Dear Sovereign Investor, Standing on the edge of an inlet is a gem of a neighborhood, filled with gleaming high-rise condos and enormous homes with long driveways that wind past expertly manicured lawns. But there are no cars in the driveways. Motion-sensor lights snap on and off as private security guards patrol the quiet streets, but there are few signs of life behind drawn shades and curtains, besides cleaners. The owners of these luxury homes and condos are nowhere to be seen.
Welcome to Coal Harbour, the most expensive and luxurious residential neighborhood in Vancouver. And the hottest real estate market in North America.
The big question real estate investors are asking themselves is, where is the next Coal Harbour going to be? You should be asking yourself the same question … Advertisement Have You Reserved Your Seat? Seats are quickly filling up for Total Wealth Symposium. Past attendees said: "Total Wealth Symposium was a wonderful experience with great & knowledgeable speakers" and "I needed this symposium. I have been to several groups trying to learn how to invest & this is the best!" Click here to register. Vancouver isn't home to a major industry, and it isn't exactly a global cultural center (unless you consider native Bryan Adams a musical icon). Instead, Vancouver is comfortable and, above all, secure, making it what Andy Yan, of the Vancouver-based firm Bing Thom Architects, calls a "hedge city."
A hedge city is a place where wealthy people in booming but unstable societies — think China, Russia, the Middle East, and similar areas — pile into local real-estate markets, driving up values and supporting a luxury-construction boom. Unlike London, notorious for its Russian oligarchs, the typical hedge city is innocuous, offering privacy and seclusion as well as social and political stability.
Essentially, rich people around the world are looking for places where they can invest some of their wealth and feel safer about it than they would at home. The phenomenon isn't new. London house prices track turmoil in southern and Eastern Europe. Miami's residential property market, hit hard by the 2008 collapse, has rebounded at the high-end based on an influx of money from Venezuela. Chinese investors are hot for Sydney and Melbourne. Hong Kong millionaires prefer Auckland.
But unlike London or Miami — and perhaps even Sydney — Vancouver is located in a stable, welcoming, unaggressive, reasonably liberty-respecting country. Historically, the city's been a magnet for the Chinese, since it developed largely as a result of Canadian trade with the Far East, and there are a myriad of existing connections. The first big Chinese influx followed Hong Kong real estate developer Li Ka-shing, who targeted Vancouver during the panic prior to the transfer of sovereignty over Hong Kong from the U.K. to China. Indeed, the ups and downs of Vancouver's real-estate market tend to track those of the Chinese economy.
Hong Kong has turned out just fine — so far. Nowadays, Vancouver benefits from the uncertainty inherent in making and keeping big fortunes in a country ruled by a (technically, at least) Communist Party. So even if property values eventually subside in the Canadian city, it's a great investment for wealthy Chinese. As architect Yan says, "If the choice is between losing ten to twenty per cent in Vancouver versus potentially losing a hundred per cent in Beijing or Tehran, then people are still going to be buying in Vancouver." Searching for Return in All the Right Places Unlike many busted U.S. real estate markets, those in hedge cities like Vancouver don't reflect an irrational bubble based on greed and perverse regulatory incentives. Wealthy foreigners are paying what they think it's worth to hedge in other countries against risk at home. In other words, from a global viewpoint, the fundamentals are good. There's genuine demand.
But because these hedge cities thrive on being out of sight and mind, many people have no idea they exist. Moreover, most of us non-oligarchs probably don't see the value in finding out more about them.
But consider this: if you knew about a city where global real estate market fundamentals are likely to push up values, wouldn't you want to invest there? After all, direct foreign property holdings aren't reportable to the IRS or Treasury, as a bank or investment account would be. And you don't have to move there to live — just hold on to it and rent it out until the time comes to sell and take your gains.
I spent some time thinking over my own travels, and came up with a few places that are potentially good candidates for "hedge city" status sometime in the future. Now remember, these aren't necessarily places you'd want to live, and the tax and regulatory environments aren't always ideal. They're not all like Uruguay , where all the stars are aligned for the perfect expat life. But from the perspective of future global buyers looking for a safe place to live — and thus for speculative property investment — they could be just right:
Somerset West, South Africa: not far from Cape Town, between the slopes of the Helderberg and the warm waters of False Bay, this town is home to a large European expatriate community. Chinese investment in Africa is starting to generate a demand for South African residential property. Hong Kong-listed Shanghai Zendai Property Ltd. has just inked an $8 billion property investment deal near Johannesburg. I'm betting that more than a few Chinese investors are going to start looking at Somerset West's spacious homes, which still go for under $150,000 on average, compared to the millions of dollars needed to buy a property on Cape Town's Atlantic seaboard.
Birżebbuga, Malta: This EU-member island state in the Mediterranean Sea recently launched a passport-for sale program, as we mentioned in the October issue of Offshore Confidential. As expected, it's attracted a lot of attention from Arab oil sheiks, Russian "businessmen," and Chinese billionaires. But to qualify, candidates have to own property in Malta, with special preferences given to the underdeveloped southern region. Birżebbuga is a seaside resort not far from Marsaxlokk in south-east Malta, approximately eight miles from the capital city of Valletta. Apartments, condos, and even freestanding homes can be had for under $150,000.
Mauritius: Another island state, this time in the Indian Ocean, Mauritius, has historical ties to China, just like Vancouver. It is also a critical financial hub for the Indian Ocean basin. Chinese buyers are beginning to sniff around properties available under the Integrated Resort Scheme, which allows foreigners to invest in homes in resort complexes around the island. Prices start at about $300,000, but are expected to rise substantially given Chinese residential interest, as well as Mauritius' proximity to Africa.
Now, none of these are "sure things," but they demonstrate the logic behind hedge cities. Look for places that are likely to attract serious buyers with stability, security and relative anonymity. Look for the links to others things that interest those buyers, like regional economic investment activity. Look for low prices.
And then get in early.
Kind regards,
Ted Baumann
Offshore and Asset Protection Editor P.S. Buying real estate offshore isn't just a good way to protect and grow your wealth. It can also serve as part of your plan to protect yourself and your family should you decide to live in another country — especially as the United States faces economic collapse. But choosing the country that best fits your needs isn't always easy. The Plan B Club can help you plan where you can go and how to get there. For more information, click here. | |
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