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Off Plan Property Versus Alternative Investments - The Result Is In ...

By Chris Davidson

So what has happened - we all know the major reasons for the current situation, but I am convinced that the over-pricing of completing properties and the lack of reliable valuations in emerging markets has contributed massively to the withdrawal of worldwide credit. This is mainly to be seen in the holiday home or tourist buy-to-let market, where a number of new coastal areas where sold at one price by a developer and valued at a much lower one by the banks. It is why in my years of sourcing and packaging property investments in 20 different countries, I mainly stuck to city buy-to-lets or land subdivisions.

On top of this, people's disposable incomes have dropped. This means that for investors, the type of return sought has changed, from speculative and long-term returns (in the case of off-plan) to more secure and preferably short-term.

What are alternative investments? - it is noticeable therefore that a new type, the alternative investment has been on the rise in the last 12 months. From stamps to forestry, renewable energy to ambulance trading....

Essentially alternative investments are products we've not heard of before or are just different to traditional routes such as property and the stock market. The major problem we have had is so much attention has been concentrated on property that we understand very little of the new types of investments that can be created and are available. Who would have thought you could get a 110% return in 90 days from buying, refurbishing and selling an ambulance through a reliable stockist? Who knew a simple change in law would mean you could create an income from an electricity company by providing them with excess electricity from renewable sources? Why weren't investment grade stamps more popular considering they have the highest compound interest rate over the last 20 years at least, better than property?

The answers are many and varied and will be covered in further blogs. However, culture, media, emotional attachment and social proof no doubt play their parts.

So how do alternative investments compare to off-plan?  Admittedly, the question is a bit too general considering the different types of alternative investments out there.  We will consider individual comparisons in future blogs.  However, the following can be said:

Off-plan is a great product in a booming market. Investors have more income and can afford to make more speculative, long-term choices when it comes to returns. However, off-plans are not income generating for at least 2 years (the typical development cycle) and can end up costing more than previously thought. This idea of "securitisation", to buy a product that you receive in the future, opens up all sorts of potential issues. Examples include changes in market conditions, changes in lending and large currency movements against you. Of course all of these 3 factors can move for you or against you, but that is the inherent risk in the product.

Some alternatives can be fantastic in a down-market. Many investors don't know where to put their money right now, and all they know is they want to be safe and preferably generate returns fairly quickly. Products have to be much stronger from a security point of view and provable to the investor. If a product is secure, and can demonstrate provable income beginning in a time-frame of 1-3 months rather than 2 years, it has a much better chance of take-up. At the moment, the days of long-term speculation are over.

So a general overview of the current situation. Secure, income producing investments are the way forward. In time we will evaluate some of the individual products available, and also ask can Property still be an investment in the current climate.

www.discoverandinvest.com

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