Real emerging property markets are to be found in South America

With the US and European property markets submerged in economic gloom it is only natural that shrewd property investors should look to other countries, indeed other continents, for the next big thing.

There can be no doubt that Brazil, one of the world's fastest growing economies, has emerged as one of the most interesting markets right now. But it has done just that, emerged, and according to some analysts cannot really be regarded anymore as an emerging market. Developers, fund managers, agents, everyone is already there, already investing and prices are not as keen as they have been.

But you don't have to go far to find the new emerging markets. Indeed just across the border Argentina is now being described as one of the world's fastest growing economies. Then there is Chile, Uruguay, and Venezuela all doing very nicely.

An examination of all the latest data shows that South America, often referred to as Latin America, offers potential property investors a range of different countries, cultures and economies to buy into.

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GDP in South America grew by 9.1% in the last quarter of 2007 according to Morgan Stanley's Economic Global Forum report. 'While US economists are focused on the continued fallout from the credit crunch, the housing recession and a weakening labour market, throughout Latin America new growth records keep being set,' the report says.

A strong economy isn't enough, of course, to make investors start to look with great interest at a country's potential. But when it is backed by government policies that encourage foreign investment, promote tourism and improve infrastructure then the interest rises.

Indeed it would appear that canny investors are already putting a lot of money into these countries. 'They are slowly emerging onto the property investment stage. With currencies immune from the credit crunch hitting the US, UK and European economies, investors are looking increasingly towards South America,' said James Gonzalez, Obelisk International Market Analyst.

'Brazil is the big brother in terms of property investment and the country is currently experiencing a residential building bonanza, due entirely to its sound fiscal policy and low interest rates. But the other South American countries are showing signs of following in Brazil's footsteps, particularly Argentina and Uruguay, with economies that are becoming healthier and more stable every day.

'This will lead to more consumer confidence to invest in these emerging markets. I also expect there will be an overspill from Brazil. Those that perhaps want the lifestyle, weather or beach, but not specifically in Brazil, will look to neighbouring countries.

Visitor numbers are up in the whole region, which will further drive the property markets of the respective countries. Brazil has the most developed tourist infrastructure but the other Latin American countries are catching up fast,' he added.

Argentina is a strong contender to catch up. 'Argentina is simply the best place in the world right now. Buenos Aires is one of the world's greatest and most liveable cities,' said Doug Casey, founder of US based Casey Research, an independent investment research organisation.

Why you might ask? 'The country is running a massive balance of trade surplus. The government is running a big fiscal surplus. Rich Europeans are piling in since Argentina is ethnically and culturally the most European country in the world,' he added.

He has personally invested in the country and is now in the process of developing 1,200 acres in Cafayate in Patagonia which he describes as the new Aspen. A world class golf course, spa, health club, vineyard and equestrian facilities are included in the plan.

Certainly the figures point to Argentina having great potential. Property prices have risen 50% since 2002. The government backed tourism industry has grown 10% year on year since 2003. Property prices are around a tenth of the European equivalent.

Argentina has beaches, ski centres, mountains to climb, the pampas to ride across, it's just that not everyone knows it yet. The number of tourists is predicted to increase to around 10 million by 2010.

Although there are a large number of hotels being built and Buenos Aires has turned into a building site, there is a growing demand for rental properties giving investors the opportunity to enjoy solid and sustained growth, according to Obelisk.

Buy to let property owners can expect rental income worth up to 6% of the original purchase price per year in the more popular neighbourhoods of Buenos Aiores, its Argentina Report states.

A new wave of boutique properties, re-built historic lodges and chalets are particularly popular according to Maria Reynolds of Reynolds Propiedades.

'The government of Argentina recognizes that foreign investment plays an important role in the continuing development of the economy and maintains a favourable investment policy through a number of incentives,' said a spokesman for Sothebys Realty Buenos Aires office.

Nestling between the two is much smaller Uruguay. Recent figures show that Uruguay has 2.3 million tourists a year, almost half descending on Punta del Este. Argentines account for the majority of arrivals in Uruguay however the Brazilian slice of the market is increasing. A rise in European visitors is anticipated.

Ecotourism is also forging forward with many innovations on how to protect Uruguay's biodiversity and natural resources at the same time as gaining benefit from them. Golf is popular and there are three top notch 18-hole golf courses within the Punta del Este catchment area.

'Although the concept of foreign purchase of investment property and holiday homes in Uruguay is still quite new, the process of buying property is kept simple by the Uruguayan Government. A foreigner has the same rights and incentives as a Uruguayan national, including access to locally-based finance,' said Andy Welland, MD of GEM Estates, a specialist in the area.

There are no restrictions on transferring capital in and out of the country and whilst the majority of real estate agents in Uruguay add a minimum of 3% to the selling price for commission, most GEM Estates' developments have this included in the list price, he added.

It is a similar story across the next border in Chile. It too has a stable economy, positive government and the beaches, mountains and attractions that have the potential to draw a huge number of tourists.

The World Travel and Tourism Council predicts that the industry will grow rapidly at an average of 6.3% per year for the next ten years. The Chilean government encourages foreign investment and property rights are protected in law.

The government has so far pledged $106 million to build new airports and improve existing ones. The capital, Santiago, is one of South America's main financial centres and international companies like JP Morgan, Microsoft, Ford and Coca-Cola have regional bases.

There are many parts of Chile where foreign investors have not yet ventured and these could be real hotspots according to Charles Spencer of property consultants All Southern Chile.

'Chiloe Island is a mover for several reasons but particularly cheap, unspoiled land. It was recently voted one of the most unspoilt islands in the world by National Geographic and has a nice balance of low development yet easy access to major cities like Puerto Montt,' he said.

'In the northern portion of Chilean Patagonia property has become more expensive. But further south around Aysen prices have not really been inflated yet. It would be expected that over the next five to 10 years property prices overall will look more like the ones you find now in the Futaleufu area,' he added.

Then moving north there is Venezuela where President Hugo Chaves has approved $566 million worth of infrastructure projects. They include a new cable car system in the capital Caracas, improvements to the subway system, roads and airports.

Although marketed as a Caribbean destination, the island of Margarita is part of Venezuela.

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A lot of beach and spa resorts are being developed on the island and it is proving popular with foreign investors. 'We are really excited about Margarita as an investment destination. We get approached by lots of developers in lots of so called emerging markets but have yet to see anything that comes close to Margarita in terms of investment opportunity and income certainty,' said Mark Andrew, Director of Emerging Earth.

'With comparable occupancy at circa 82%, visitor numbers growing at 15%, in an already developed tourist destination, easy access, coupled with strong economic and sustainable growth in one of the few Caribbean Islands not to be in the hurricane zone, it's a wonder that this market has not developed further before now,' he added.

But as in life, in the property investment world nothing is guaranteed. The same Morgan Stanley report that records how well South American economies are performing also has a cautionary note. 'We suspect that 2008 is likely to be the year when Latin America faces its first external shock as the US recession works its way through trade channels, commodity prices, investment plans and financial markets,' it says.

The problem, according to Morgan Stanley analysts, is that too much of the growth in South America, including Brazil, is the product of external factors.

'The home-grown determinants of growth have contributed very little to the era of abundance that the region has been enjoying over the past five years. In particular Argentina's average 8.7% growth since 2003 would have been only 3.7% if not for the unusually favourable external environment. And for Brazil, external factors have boosted growth by 1.6% on average every year since 2003. That is most of the difference between Brazil's current status as investor favourite today and its previous one as a pariah a few years ago,' they say.

But they are not predicting a severe downturn in South America. 'Although strong balance sheets will not insulate the region from the economic cycle, it should make it more resilient.'

There are some parts of South America that are not worth considering from an investment point of view because of instability, especially Ecuador and neighbouring Columbia. Just this week the Council on Hemispheric Affairs, a non-profit research organisation, published a report which said; 'Ecuador is confronting a wave of violence previously unknown in the country. Organized crime, sicariatos (brutal contracted killings), drug trafficking, and kidnapping contribute to increased violence. The internal conflict in neighboring Colombia is also of concern.'