The Overseas Property Investment Crash: Where it all Went Wrong

In the early noughties, the makings of an overseas property boom were being born. At the time, buyers were primarily wealthy buyers, buying property in the core markets like Spain; markets already well known by tourists and well covered by flights. They were primarily purchasing holiday homes.

The advent of budget air travel changed all this. Budget airlines opened up new destinations, and made air travel practical for the masses. People quickly realised that property was cheap in these new destinations, and when looked at in tandem with the rapid growth in tourism and services (massively fuelled by growth in aviation) in these emerging markets, the investment potential of properties in these destinations quickly became apparent - the overseas property investment boom was born.

And what a boom it was. Speculative investors were buying off plan property in emerging markets like they would buy last minute tickets at a travel agent; fast and furious.

Emerging market property is a high risk investment, and anyone that tells you any different is lying. The trouble is that simply failing to mention risk is not a lie, and the onus is not on agents to talk about risk, it is up to buyers and investors, or their independent advisers to assess the risk of an investment.

A good rule of thumb is that if it is offering high (5% plus) returns it is probably high, or at least moderate risk. During the last boom, confidence in overseas property investment got so high that people were investing in emerging markets with as much thought and care as opening a bank account, and that is why so many people lost so much money in the crash.

Don't get me wrong; of course no one could have predicted the magnitude of the crash, but take Dubai for an example. I have chosen Dubai a: because of the massive number of people who lost money in property investments in the country and b: because that loss was among the easiest to predict.

In late 2007 EFG Hermes brought out a report on the alarming oversupply that was being created in Dubai. Developers were building towering feats of engineering magnificence -- including the world's largest tower, and islands in the shape of the world -- bringing hundreds of new units into play, when there last developments were nowhere near sold out. Damn, when they ran out of land they just created more.

Dubai was heading for a fall, the global crisis was only the catalyst for what was becoming inevitable anyway, and anyone who did even a basic amount of research could easily see it. Yet thousands of investors were still pouring money into off plan properties; almost all of them would become buy to flippers with no property to flip.

Dubai was perhaps the most dramatic case, because people were left with nothing in most cases. But many of the people who have suffered from returns much smaller than they went in expecting, could also have avoided disappointment by doing a little more research.

I am an avid believer that, done properly, there is no more rewarding property investment. I wrote a guide on how to do it properly, so if you want to find out how you can read it here.

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