The Future of the Emerging Market

The future of the emerging market (1) has been called into question recently. On one hand bloggers and commentators on real estate forums are throwing theories about that the current press attention being given to banking problems in the U.K. and economic problems in the U.S. will see investment in emerging markets slow, and any money being spent being put into established markets. One, screen-named Kim on the Totally Property forum was even so bold as to say “I think the emerging market is now overplayed and we are saturated with new emerging markets that are cheap and likely to stay cheap.”

On the other hand financial and global economy experts are predicting that the emerging market of Brazil will grow into the world’s fifth largest economy in the coming years. What’s the truth here?

I personally believe that emerging markets are just that: emerging. No matter how slow the global economies get, people will always be taking their yearly holidays, and rising tourism is what is fuelling the emergence of these under-developed countries. As people from the developed countries of the world, with more disposable income visit these countries and spend their money on accommodation and their holiday spends, this develops the economy.

As tourism increases tour operators start looking at the country and sending scouts to investigate its potential, the number of flights to the country increases and before you know it Hilton hotel chains are being built and taking on staff from the ground up. Like the massive sky scraping Hilton hotel complex in the emerging market of Panama’s capital, Panama City. O.K. many of the most senior staff might well be relocated to run the hotel, but even if all senior staff are imported, how long is it going to be before bright young locals are getting promoted — possibly even achieving a really high position should one of the execs get a better offer.

Promotion or not the amount of jobs a complex like that provides for the local community, who then have a lot more money to spend on accommodation, possibly rental or even buying their own homes. This all brings massive regeneration into the community and the economy.

Therefore, with emerging markets, fuelled by tourism as they are, if anything a slow down in the markets could well strengthen the emerging markets, on the grounds that, the current emerging markets have good climates, and low cost of living, so people can have a cheap holiday in the sun. That is an attraction even now, a low cost holiday in the sun, and on top of the that, off the beaten track, possibly exotic and somewhere different than all your friends have been. But this is a property investment take on emerging markets, so where does real estate investment, and potential profit thereof fit into my theory…

Well, the shrewdest investors will put their money into a swanky off-plan apartment or villa around the time that flights start increasing, major tour operators launch a new destination, and hotel chains like Hilton get in on the action. And that is generally the case, investment property overseas property agents see a market emerging and start to get property there onto their books as soon as possible. When property in an emerging market starts to receive interest from global buyers, this in itself causes prices to rise.

Whereas before property has had to be affordable for the local population, given enough global attention, property values will start to get closer to what the property is worth to global buyers with more money. Not just that, as the economy develops prices start to rise for building materials, builders and laborers start not only expecting, but needing a higher wage to keep up with increasing living costs, this all pushes up house prices.

Therefore a market’s emergence has a kind of perpetual motion; once the emerging market wheel starts turning it very rarely stops. In short, once a market becomes known as an emerging market, and I don’t just mean because Terrry down the pub says so. I mean once experts start calling a country an emerging market, and overseas property agents start offering property there amass, then the chances are prices are already rising across the board, and will continue to do so for the foreseeable future.