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Is it always better to build houses in an emerging market rather than speculate or re watch

    • Thread Starter

    Is it better to build houses as a general contractor in an emerging market where growth of house prices were 25 percent a couple of years ago or buy a house and hope it will go up in price or buy and rent a house in that market? The average wage per hour in that country for a builder working on site is below 1 dollar per hour so the construction costs are really low compared to the West and there is a shortfall of 115,000 houses needed in the country. Would the margins made by building simply trump any return on speculating on house price rises or renting out property over a long period of time?

    It is a risky strategy:

    1) The economies and currency of developing countries fluctuates wildly. For example if you had invested into Indonesia or India over the past few months you would have lost a bomb on currency movements alone.
    2) Dramatic price increases lead to more people pilling into the market. People assume that demand will continue going up. If demand slows, or even if it demand increases but not as much as expected, you quickly end up with huge oversupply in the market. This is what happened in many parts of China (google China ghost town).
    3) Very poor construction quality. The build quality in places like Dubai is actually shocking.

    With any investment, if you want huge returns you need to get in early when the asset is still not popular. Once you start looking at historic track records you have already missed part of the boat and risk the price coming back down.

    My parents have bought Land in emerging markets, if you do your homework you can absolutely kill it. However you need to know the market and the locals including laws. Currency fluctuation is minor its a short term movement if you invest with a 20-40 year period you can get astronomical returns. My grandad bought some land for thousands and now is worth ALOT more.
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