Newsweek, October 15, 2007
Capital Ideas
By Linda Stern
Newsweek
Oct. 15, 2007 issue - The U.S. housing bubble may have burst, but many American investors are looking at real estate in Europe and Asia. It's been a smart play: foreign real estate doesn't move in tandem with the U.S. market, so it can be a good way to diversify. And the numbers are compelling: between 2001 and 2006, the value of a one-bedroom apartment in New York appreciated 33 percent. But the same money invested in London, Paris or Mumbai would have returned 92 percent, 129 percent and 149 percent, respectively.
But before you book your round-the-world shopping trip, remember the currency factor: about half the gain of European properties comes from the dollar's decline against the euro, says Ward Naughton of HiFX Inc., a San Francisco company that arranges financing for international deals. "At some point, you know that will turn." When it does, Americans investing abroad could lose money. He recommends Asian properties, where economies are growing. Some tips:
Get a place of your own. Who wouldn't want an apartment in Paris or a Caribbean getaway? Start your research at internationalliving.com and escapeartist.com, link-loaded Web sites that explain country-by-country procedures. Work with a good local agent who has dealt with Americans. You may be able to get a foreign-currency-denominated mortgage, which works in your favor if the dollar strengthens.
Buy funds. If you want to make the play less directly, invest in a foreign real-estate mutual fund or exchange-traded fund. Look at the Alpine International Real Estate Equity Fund (EGLRX), the Fidelity International Real Estate Fund (FIREX) and the new index-following exchange-traded funds: SPDR Dow Jones Wilshire International Real Estate ETF (RWX), WisdomTree International Real Estate Fund (DRW) and iShares S&P World ex-U.S. Property Index Fund (WPS). If you tuck them into a tax-favored retirement account, you won't ever feel the extra tax burdens these funds sometimes deliver.