France, Germany, the Netherlands and Switzerland are the safest markets for international real estate investing, while Indonesia, Peru, Russia and Venezuela are the riskiest, according to a new study by Prudential Real Estate Investors.
"Many institutional investors, driven by their appetite for higher returns, desire to diversify, or the increasing globalization of businesses and capital markets are showing increased interest in international real estate investing," said Will McIntosh, managing director and head of research at the Parsippany, N.J.-based firm.
International real estate investing usually involves three categories of risk, according to Mr. McIntosh: country risk; real estate market risk; and deal risk. In many countries, particularly emerging markets, country risk is likely to be the most important component, Mr. McIntosh said.
The study found industrialized countries have very low risk premiums or discounts relative to the United States, while emerging countries have substantial risk premiums.
The risk premiums for Germany, France and the United Kingdom are virtually zero, indicating the long-term risk profile of each of these markets is substantially similar to that of the United States. Higher up the risk curve, Poland and the Czech Republic have risk premiums slightly above 5%; Malaysia, Thailand and the Philippines have risk premiums ranging from 6.6% to 8%; while Argentina and Brazil have risk premiums of 8.4% and 10.5%, respectively. Peru has a risk premium of 10.6% and Venezuela, 11.7%. But Indonesia and Russia were shown to have the highest risk premiums at 14.4% and 22.9%, respectively.
