Blend instinct and solid data for overseas investment decisions

Soft power and instinct are driving overseas real estate investments, say the specialists interviewed and data analyzed for Grant Thornton International Ltd’s new report, Uncovering Opportunities for Overseas Investment and Growth. The report shows that trusting gut feelings, rather than examining data, determines many such decisions. However, relying on instinct alone — without the assistance of hard evidence and on-the-ground advice — can lead investors away from emerging areas of opportunity.

“Feelings” are behind a surge in overseas investment

“When you look at where investment is made, one of the key things investors look at overall is the stability of the political environment,” says Alvin Wade, national managing partner of Grant Thornton LLP’s Construction, Real Estate, Hospitality and Restaurants practice. This assessment is borne out by the research. According to Grant Thornton Ltd’s report, the cross-border real estate transactions that rose by 9% in the first half of 2015 were driven by the search for stable regions. As for how the decisions were clinched, over one-half of senior executives in Canada, Australia, the U.S., the UK and India said it “simply feels like a good fit.”  

And the amounts are considerable: estimated overseas real estate investments reached $250 billion annually.

Investors are also shown to be counting on their feelings of familiarity; they’re sending their money to locations they know well. But staying the course can mean missing less familiar but more fruitful territories.

The report shows that of the 10 countries that received major investment in 2014, the five countries earning the highest rankings in the World Bank’s political stability index received only 25% of investments. The political environment of those countries — Singapore, Canada, Australia, Japan and Germany — would satisfy investors’ craving for stability, but the opportunities aren’t maximized because the data is not being scrutinized. Investors are drawn from those smart choices by other locations’ soft power perceptions rather than actual indicators.     

On the domestic front, Wade points to the “bling factor” attraction of iconic New York City buildings.

Soft power also shows its force when investors make decisions in favor of places with which they have an educational link. A glowing picture is painted of countries where investors or family members had an overseas college experience or people they know grew up and attended school. The report reveals the connection between host countries of international students and investments made.  

Build your investment decisions on a realistic foundation 
Use the same dispassionate judgment in overseas investment that you apply in other business considerations. Here, as elsewhere, resist ephemeral choices:
  • Reflect on the lure of soft power
  • Pay attention to the sway of personal experiences
  • Incorporate hard analysis while not discounting business instinct  

Global real estate opportunities abound, as does data around them. Examine the data to support a reasoned strategy for maximizing your returns.  

Read Uncovering Opportunities for Overseas Investment and Growth for practical, actionable insights from investors, industry experts and Grant Thornton LLP real estate specialists.  

Contact Grant Thornton LLP professionals with your investment questions.