Q2. Critically analyze the drivers behind the increase in cross border commercial property investment and key considerations and issues faced by international real estate investors.
There are two key reasons as to why cross-border commercial property investment has been on the rise. These are.
- To enhance return -Property investment return is not the same across the board. They are some cities or state with better return than other. To take advantages of such situations, Investors has in the recent past increased their investment in Cities or state or regions with potential for high return in order to boost their own return and enjoy lower risks profit unlike when operating in one country where there is high risk profit as a change in the macroeconomic of one state can affect all properties in the country at once.
- Diversification âdiversification is a key strategy in investment. By default, Investors should try as much as possible to diversify his or her investment so as to lower risks and increases change of high return. Cross-border investment provide investment with a greater scope for investment in term of sectorial, regional and advanced vs emerging market. For instance, A UK investor who want to diversify their investment, can easily invest in residential estate in US, Invest in Commercial property in UK, or invest in both commercial property and residential property in Asia. Doing so would mean that his investment is diversified intern of sectorial (i.e., residential and commercial), regions (i.e., UK, USA, and Asia) and emerging and advanced market i.e. (UK and US as advanced market while Asia as emerging market.
Other factors that have also driven cross-border property investment are.
- The development of trading block such as Euro which make it easier for property investors to cross border.
- Financial deregulation which encourages cross-border capital flow into real estate
- Advancement of technology which has make it easier for Investors to identify property in oversea market, close deal and monitor and manage their property investment.
. Cross-border property investment is however faced with a number of issues which an investor should look out for. These are.
- Legal system-different country has different legal system which then affect how property are dealt with. For instance, in China, there is high restriction of foreign ownership of land and therefore ownership is not guaranteed.
- Taxation- countries across the globe has different taxation regime especially the one that involve property investment. It is therefore not straightforward in determining the potential return of property in each country.
- Corruption- corruption vary from countries to countries and this make it difficulties for investment to easily invest in cross-border property investment. This is so because in some countries, Corruption may frustrate their effort to acquire property while in other countries do so would be a less hectic process.