Having faced its fair share of ups and downs in recent years, the international real estate market appears poised to mature. Following excessive amounts of speculative buying by first-time investors, buyers are becoming more aware of realistic growth opportunities. Because of this, guaranteed buyback offers on new developments have become more difficult to find, mainly due to the volatility of many emerging and established markets of late.
The idea of a guaranteed buyback scheme is usually based on a contractual offer from a development company. The developers agree to buy back the property for a fixed percentage of the price, after a set period of time.
Guaranteed buyback offers are more likely to be made in strong emerging markets, where the probability of short- and medium-term capital growth is very high. If a developer guarantees to buy back a property for a specific percentage within a certain period of time, a serious market analysis will have been carried out to ensure a strong potential return for the developer.
Because of this market analysis, it is almost certain that savvy investors, willing to spend time and energy studying the market, could make higher profits. However, buyers who expect a quick return selling on their own, disregarding capital gains taxes and agent fees, often receive a much lower return than initially expected.
The benefits of investing in real estate that offers guaranteed repurchase options include an easily established exit strategy, without the need for owners to search for potential buyers for resale in a foreign market. Additionally, the value of a unit is protected and there is no need to consider any long-term maintenance on the property, just general maintenance over the term of ownership.
Entering into a guaranteed buyback scheme is similar to buying a low-risk investment, ideal for those with limited experience in foreign markets. Buyers often have more confidence in a product and market that offers a guaranteed buyback, as their investment growth will not be affected by market fluctuations.
Decisions to enter into a guaranteed buyback scheme include realistic considerations regarding the personal commitment of the buyer. Accepting the buyback option will allow the buyer to keep their investment, knowing that they will get a great return. Opting out of a guaranteed buyback in order to generate a higher return will require close monitoring of the market, knowing when the best time to sell has arrived. This also requires finding buyers for the property, as well as understanding the optimal exit strategies for that particular market and investment.
The ease of a guaranteed buyback works on many levels, ideal for buyers who want to invest their funds in a highly secure option. Other considerations to make before accepting a guaranteed buyback offer include security. Making sure the developer has a solid track record is essential to avoid potential losses. The leading names associated with the development or management company provide added confidence and support to the buyer.
All the benefits associated with a region offering guaranteed repurchase options are likely to be found in the strongest markets, which show economic growth, stability and a positive future outlook.