Emerging Markets: Where to Invest in 2023

Introduction: The Case for Emerging Markets in 2023

As traditional property markets in the UK and Western Europe continue to face challenges of high prices and modest growth prospects, savvy investors are increasingly looking to emerging markets for stronger returns. In 2023, several regions stand out for their combination of affordability, growth potential, and improving infrastructure.

This article explores the most promising emerging property markets for UK investors this year, examining the factors driving growth and the potential risks to consider before committing capital.

Southeast Asia: The Growth Epicenter

Vietnam: The Rising Star

Vietnam continues its trajectory as one of Asia's fastest-growing economies, with GDP growth projected to reach 6.5% in 2023. The property market, particularly in Ho Chi Minh City and Hanoi, offers compelling opportunities for foreign investors.

Recent legal reforms have made property ownership more accessible for foreigners, allowing 50-year leasehold rights for apartments. Prices remain attractive compared to regional neighbors like Singapore and Thailand, with luxury condominiums in prime locations starting from $2,500-3,000 per square meter.

The rental market is robust, supported by a growing expatriate community and rising domestic affluence. Investors can typically achieve gross rental yields of 5-7% in well-located properties, significantly higher than yields in many Western markets.

Malaysia: Value and Accessibility

Malaysia offers one of the most foreigner-friendly property investment environments in Southeast Asia. The Malaysia My Second Home (MM2H) program, despite recent revisions that increased financial requirements, continues to attract overseas investors seeking both property and residency options.

Penang and Kuala Lumpur remain the primary investment hotspots, with Johor Bahru emerging as an alternative due to its proximity to Singapore. Premium condominiums in Kuala Lumpur can be acquired for $300-400 per square foot, significantly below comparable properties in Bangkok or Singapore.

The Malaysian government's continued investment in infrastructure, including the East Coast Rail Link and various transportation improvements, is expected to boost property values in connected regions over the coming years.

Eastern Europe: Accessible European Investment

Georgia: Europe's Hidden Gem

Georgia has emerged as an unexpected property hotspot, particularly popular with digital nomads and remote workers. The capital, Tbilisi, offers a unique combination of European charm, affordable prices, and a liberalized property market that allows foreigners full ownership rights.

Property prices in central Tbilisi range from €1,200-2,000 per square meter for renovated properties, with significantly lower prices available in emerging districts and secondary cities. The tourism sector's rapid recovery and expansion is supporting strong rental demand, with short-term rental yields reaching 8-12% in prime locations.

The government's pro-business stance, 365-day visa-free stays for many nationalities, and minimal taxation create a highly favorable environment for foreign property investors.

Montenegro: Coastal Opportunity

This small Adriatic nation offers a compelling investment case, combining Mediterranean coastline, EU accession prospects (targeted for 2025), and prices that remain significantly below neighboring Croatia.

The Bay of Kotor and Budva are the primary investment locations, with luxury developments attracting global investors. The government's Citizenship by Investment program, while scheduled to conclude in 2023, has driven significant infrastructure development that will benefit the property market for years to come.

Investors should note the seasonality of the rental market, which peaks strongly during summer months but can be relatively quiet in winter, affecting overall annual yields.

Latin America: Long-Term Growth Potential

Mexico: Retirement and Rental Appeal

Mexico continues to attract significant investment from North American buyers, but UK investors are increasingly discovering its combination of affordable luxury properties and strong rental potential in tourist destinations.

Locations like Playa del Carmen, Tulum, and Puerto Vallarta offer the potential for both capital appreciation and robust rental income. The expansion of remote work has extended traditional tourist seasons, improving year-round rental prospects.

International buyers should be aware of the fideicomiso system (bank trust) required for foreigners purchasing property in restricted zones near borders and coastlines. While this adds some complexity and cost, it provides secure ownership rights.

Colombia: Urban Regeneration

Medellín and Cartagena represent two distinct but compelling investment opportunities in Colombia. Medellín, once notorious for crime, has transformed into a technology hub and expat favorite, with the El Poblado district offering particular appeal for foreign investors.

Property prices in premium areas of Medellín range from $1,500-2,500 per square meter, while historic properties in Cartagena's walled city command premium prices but offer strong tourist rental potential.

The Colombian peso's current relative weakness against major currencies enhances purchasing power for foreign investors, creating a potentially advantageous entry point in 2023.

Emerging Market Investment Strategies

When approaching emerging market property investments, UK investors should consider these strategic approaches:

1. Diversification: Rather than concentrating capital in a single emerging market, consider diversifying across 2-3 regions with different economic drivers and risk profiles.
2. Legal Structures: Investigate optimal ownership structures for each market, potentially including local companies or trusts to manage tax implications and inheritance considerations.
3. Management Solutions: Unless planning to relocate, robust property management is essential. Factor management costs (typically 15-25% of rental income) into yield calculations.
4. Currency Strategy: Consider the implications of currency movements on both purchase costs and ongoing rental income. In some cases, hedging strategies may be appropriate for larger investments.
5. Exit Strategy: Always enter with a clear understanding of the potential exit process, including any restrictions on repatriating funds, local capital gains taxes, and the depth of the local resale market.

Risk Considerations

Emerging markets offer higher potential returns but come with elevated risks that must be carefully evaluated:

• Political Stability: Government changes can significantly impact property rights and foreign ownership policies. Evaluate the political climate and historical treatment of foreign investors.
• Currency Volatility: Emerging market currencies can experience significant fluctuations, affecting both the capital value of your investment and rental income when converted to pounds.
• Legal Framework: Property rights, contract enforcement, and dispute resolution may be less robust than in the UK. Research the legal protections available to foreign investors.
• Market Liquidity: Secondary markets for property can be less developed, potentially extending the time needed to sell and repatriate funds.
• Infrastructure Risks: Promised infrastructure developments that could enhance property values may face delays or cancellation, particularly in less stable economies.

Conclusion: Strategic Opportunity in 2023

The emerging markets highlighted in this article present distinctive opportunities for UK property investors seeking stronger returns than those currently available in saturated Western markets. While these investments carry additional complexity and risk, the potential for both capital appreciation and robust rental yields makes them worthy of consideration for diversified investment portfolios.

The current macroeconomic environment, featuring a relatively strong pound against many emerging market currencies, creates a potentially advantageous entry point for UK investors in 2023. However, success in these markets requires thorough research, professional guidance, and realistic expectations about both returns and risks.

At Global Elite Properties, we specialize in helping UK investors navigate the complexities of emerging market property investment. Our team provides comprehensive support throughout the investment journey, from initial market research to acquisition and ongoing management.