SOUTHWARD MIGRATION & AN UNDERSERVED MARKET

If you had a time machine and could see the future, would you be able to make better decisions? Would you be a better investor? They seem like silly questions, but we would make better decisions if we knew the future, wouldn’t we? If we could see what was going to happen, we would develop products and services that everyone wants and needs, and then of course, we’d do very well for ourselves.

While we can’t go forward in time for a sneak peek, we can spot emerging trends. When the macro-demographics line up behind that trend, get ready. There is going to be a lot of money to be made by somebody. Why not you? I was among those fortunate enough to be a part of the early computer wave of the late 1980s and early 90s.

Now the truth be told, it wasn’t foresight that put me there…just plain luck. But there I was, and it was a great time to be in the computer business. The success of the PC and the fortunes made is a great example of the convergence of demographics and scarcity. More people wanted PC’s than were available for a significant period of years. It produced huge opportunities for investors and entrepreneurs.

Profits from computer and software sales were enormous because initially scarcity reigned. Consumers demanded a product and production facilities were not in place to produce the quantities demanded. A smart investor is always on the lookout for the next big, under-served market. As expats move south of the US border in record numbers, you have the unique chance to arrive ahead of the next big demographic wave.

THE DEMOGRAPHICS

North America has a long history of immigration, with the United States alone home to around one-fifth of all international migrants. However, we don’t often stop to consider the outward flow of individuals seeking property outside of North America. There is a cyclical nature to this pattern, with a strong, under-researched trend of North Americans emigrating, living, and owning homes in locations across the globe.

This alternative perspective on migration, the movement from wealthier countries to emerging markets, is the focus of the Zogby Company survey, The Flip Side of the Migration Coin. The study, composed of data from a huge statistical sampling of 103,000 respondents, illuminates the previously uncharted waters of how Americans view international relocation and home ownership. What the Zogby Company discovered is that 18% of the respondents, representing more than 26,000,000 individuals, have a desire to move or own property outside of the United States.

The survey also asks respondents to list the region of the world they favor. Of the 26,000,000 considering relocation or property ownership overseas, 4,500,000 listed Latin America as their first choice. It’s important to note that, though the U.S. specifically is examined in this study, similar migration and relocation trends are seen from wealthier nations worldwide.

A strong dollar is one factor helping to accelerate the international trend, making buying a home abroad more affordable than it used to be. Quoted in the Wall Street Journal, Leading Real Estate Companies of the World detailed a report based on data from their network of over 500 real estate brokerage firms stating the number of U.S. buyers searching for homes abroad has risen close to 30% in recent years. While the U.S. government does not formally keep track of how many Americans own property or live outside of the United States, there are still ways to estimate the number. The Federal Voting Assistance Program, tasked with assisting overseas Americans with voting, estimates there are between 4.5 million to 6.5 million Americans residing overseas. The State Department estimates that the figure stands closer to 6.8 million, ever increasing as time progresses.

There are surely many factors that tie into one’s decision to relocate abroad. The Zogby survey found that amongst those respondents that had previously relocated, three key groups emerged: individuals in search of adventure, individuals motivated to relocate based on their political views, and individuals in search of a change from current circumstance – such as a less stressful environment and more affordable cost of living. In another study of factors associated with relocation, the Migration Policy Institute found that economic factors were a main trigger for Americans to move south of the U.S. border.

Regardless of the specific reasoning, overseas real estate is a unique investment in that it affords the opportunity to achieve a high quality of life – not just quantitatively through economic advantages, but also qualitatively through lifestyle advantages. While only an estimate, given a lack of historical statistics, the Zogby company notes, “the anecdotal evidence demonstrating an increase [in individuals relocating internationally] is overwhelming.” Why?

According to The Flip Side of the Migration Coin, the answer is simple – because they can. Our more globalized world makes it easier to move in many ways, including the fact that we need not cut ties in our local communities. With the internet, greater ease of transit, and new methods to remain in contact, relocation no longer means separation from our support networks.

“Future generations may look back on the first decades of the 21st century as the Age of Migration.” – The Flip Side of the Migration Coin

When speaking historically, Mexico and Costa Rica have attracted a large percentage of expatriates who immigrated to the region. What followed in these countries was an incredible escalation of the real estate values. ECI is working at the very beginning of this trend in the countries and sub-regions that are in the earliest stages of this growth phase.

When one considers the general supply of serviced, high quality home sites in the region, one quickly can imagine the impending shortage if even just a small percentage of people identified in the Zogby survey decide to act on their intention to own or relocate. If one considers the amount of residential product with world-class infrastructure and amenities, the shortage is magnified immensely.

A developer survey by Christopher Kelsey & David Norden clearly points to the growing consumer demand for products with high levels of infrastructure, amenities, and realty. Prior to the real estate and economic crisis in 2008, most consumers were willing to, “Bet on the come” and buy pre-construction and speculative product. Today their attitudes are very different. When surveyed, developers agree by an overwhelming 94% that, “Consumers’ expectations for clarity and commitment for the delivery of promised amenities will be greater.”

Ninety-two percent agree that, “Consumers will want to see the infrastructure and amenities complete before purchase.” Eighty-five percent see an increased trend by consumers to purchase completed homes and condominiums rather than vacant lots and pre-sales opportunities.

There is a shortage of supply for today’s consumer because most developers in the region sell a speculative type of product called “cut and run.” This literally means that a developer buys a large tract of land, adds the minimum infrastructure such as dirt roads and electric poles, cuts the property into lots, and then sells the lots to speculation buyers. Large expenses like water and sewage treatment are often offloaded onto the consumer, who if they decide to build, must drill wells and build septic systems. In many cases, soils are heavy clay, which won’t percolate, and water tables are located deep underground. In addition to the obvious environmental issues lurking, this ends up costing buyers much more than their share of a centralized system. One of our principle roles will be to educate consumers about the pitfalls of buying empty promises.

There are strong reasons why this type of product is developed. It is the cheapest way to be a developer and the least risky. Very little capital is invested into the land prior to sale. There is also a market of speculative buyers who want a cheap price for a piece of property and hope to resell it at some point in the future for a profit. What this rarely produces, however, is community and lasting consumer value for residents. This is the principle reason that there is a crisis of shortage in the marketplace for high quality, affordable residential product for North Americans.