The Euro reached record exchange rate levels this week, rising as high as 1.5144 EUR against the US dollar: good news for buy-to-let investors seeking more affordable property in the USA with which to tap into a growing demand from many US citizens unable to enter the property ladder. The country is also witnessing a colossal increase in European tourists lured to the USA by the attractive exchange rate.

Tighter credit conditions and negative equity are forcing many US citizens out of the housing market, many of whom are leaving homes behind them that have become too expensive to pay for. Although this is a dramatic situation for many, it poses an incredibly good scenario for anyone wishing to make positive returns through buy-to-let investment property. As access to the property ladder becomes a back-breaking affair, many would-be buyers are opting for rental property instead. “Rent increases will exceed historical averages over the next three to five years,” said Orlando-based apartment builder Steve Patterson, CEO of Zom Inc.

‘As credit difficulties make it harder for people with less-than-perfect credit to obtain home loans, demand for rental units will increase’, Patterson said. Perceptive property investors are already making their way to the “New World”. Recent figures produced by the National Association of Realtors have shown that foreign property purchases in the country are at an all-time high. The British are the main participants in this market, purchasing 12% of homes bought by non-US nationals in 2007, only exceeded by the Mexicans who purchased 13% of properties during this year. Homes sold to the British rocket in Florida. Here, UK citizens make up 33% of international home buyers, only to be followed by the Germans, Canadians and Venezuelans with 7% each. The main reason for most of these property purchases was investment with a view to renting out the property or providing a holiday home to both family and friends.

Buy-to-let investors can rest assured in the knowledge that the US, and particularly Florida, attracts tourists for many reasons. Theme parks and beaches aside, the sunny state saw visits from abroad jump about 7% over 2006 according to Nikki Grossman, CEO of the Greater Fort Lauderdale Convention and Visitors Bureau. And the reason? The weakness of the dollar against the euro and British pound. This is reinforced by the fact that 48% of purchases at Sawgrass Mills Mall (just outside Fort Lauderdale) were made with non-US credit cards, states Ms. Grossman. “Brits came to do their Christmas shopping. They bought suitcases, and filled them”, she explains. “To them, it was like a free vacation.”

With the recently approved Open Skies agreement between USA and the EU, prospects for investment property in Florida are only likely to edge upwards. Zoom Airlines is advertising return flights from London Gatwick to Fort Lauderdale in Florida for as little as £299.

So whether it is the sunny Florida or America’s Big Apple that rocks your boat, low US property prices, coupled with healthy rental demand, can generate positive income returns while you wait for the property to largely appreciate in value – something that is set to happen over time, once the credit crunch is over and prices ‘back home’ return to their normal levels.

Gross lending declined to an estimated £24 billion in February, down 7% from £25.9 billion in January and 6% from £25.6 billion February 2007, according to the Council of Mortgage Lenders.

The Bank of England approvals data for January showed subdued levels of house purchase activity and a sharp rise in remortgage approvals, which is likely to be supporting current lending volumes.

CML director general Michael Coogan said:

We have entered a substantially slower phase in the housing market and there will be ongoing problems in the mortgage funding markets unless the Bank of England makes new, broader based attempts to improve levels of liquidity in the UK.

Demand for mortgages remains strong but cannot be fully met from existing funding. This has led many lenders to reduce their product ranges, increase their mortgage prices and, in some cases, to reduce their lending capacity.

As credit conditions change markedly from day to day, lenders will continue to rapidly adapt their products and pricing to match. This is a vital response to the uncertain conditions.

Another UK based real estate company, Integrated Property Investments Ltd, is flexing in preparation for entry into the market this year. The firm is seeking a dual listing in the Nairobi and Dar es Salaam stock exchanges.

Managing Director, Mr Suleiman Dualeh told Real Estate that East Africa has developed a vibrant property market, which investors, both local and international, want to be part of. “We have applied to the Capital Markets Authority at the NSE and the Capital Market and Security Authority at the DSE for approval for the floatation of a REIT, and we are waiting feedback from them”.

REITs (Real Estate Investment Trusts) are public or private traded companies that own, develop and operate commercial properties. Reits serve as vehicles for raising liquidity in the property sector, by pooling individual and institutional investors, allowing them to diversify their investment portfolio in real estate. “Because banks borrow short, they are not able to sustain medium and long-term financing on fixed interest rates. REITS allow for the securitilisation of equities, and through this secondary market, investors can own real estate proportionate to their financial capacity,” says Dualeh.

The investment opportunity is offered to a select group of private investors and institutional investors who are identified for their ability to assess the investment opportunity with or without the help of outside advisors. The proceeds of the funds will be used to fund Bahari Beach resort, a mixed-use gated community off Dar es Salaam, that Integrated Property Investments (Tanzania) Limited, a sister company in Tanzania, is developing.

The Dar project is a development of 700 units with the attendant social and commercial amenities- schools, a shopping, mall a clinic, office park, and a hotel. “We are developing the neighbourhood with the aim of starting a satellite centre in a bid to ease congestion in the city,” explains Suleiman.

Bahari Beach resort is an upper middle-class development of apartments, townhouses, and villas, targeted at individuals, corporates and expatriates. Having broken ground last month, the firm plans to construct the neighbourhood in four years and in six phases. The first phase of 396 units sits on 50 acres of land.

“Dar es salaam is plagued with a severe shortage of housing and a proliferation of unplanned houses. What we are aiming at is to create “self-contained cities” outside the city in order to upgrade the stock in urban residential housing and reduce traffic at the nucleus,” says Suleiman.

Having operated in the UK property market for the last eight years, IPIL is careful to integrate local professionals in the development. “We want the locals to participate and own the project. Local professionals understand the culture and taste of the people. Most of the International specialists, like MC20, a Chinese contractor, and Cowi Engineering (T), have also played in the East African market for long,” he explains.

Kenyan firms have joined the wagon with In-House Project consultants as the architects and Eldon Developers as the selling agent. “We have secured half of the funding from international participants from London and New York interested in East Africa. We seek to integrate modern models of financing to serve both our local and international investors,” says Suleiman.

Funding has been arranged with both Tanzanian banks and American institutions. The foreign banks will provide cheaper mortgage rates for Tanzanians. In the developed world, interest rates are at single digit units.

“We intend to list the REIT so as to mitigate the cost of financing. Securitizing the real estate market opens up the secondary market, which makes for fast and easy liquidation of investments in real estate. Any excess funds, says Suleiman, will be used to develop similar projects throughout the region,” says Suleiman.

However, in East Africa, policies governing the listing of Collective Investment Vehicles for property are yet to be set.

Despite having set March this year as the time for entry of REITs into the Kenyan market, the CMA is yet to publish a report on the viability of real estate investment trusts in Kenya. The study should inform the laying of appropriate policy and legal framework. Four international and local real estate companies have expressed interest in listing at the stock exchange, among them a local company with US ties, Bora Capital. Some of the policy issues that need addressing before Collective Investment Schemes can to be adjusted into REITs are the proportion of a company’s assets that can be invested in real estate, which is currently set at 25 per cent by the Retirement Benefits Authority. Collective Investment Scheme rules will have to change to allow companies to invest 100 per cent of their capital in real estate.

Just like equities, fixed income securities and mutual funds, REITs are bound to boost activity at the bourse.

Tanzania is only now engaging the private sector in ownership of property, and Suleiman calls on Kenyans to set their sights on the Tanzanian property market. “We need to reposition property in East Africa for wider consumption, and especially, cross-boarder exchanges,” advises Suleiman.