Transcript Document 7116597

The Americas
Objectives
• Introduce:
– Social, economic, political, geographic
characteristics
– Laws and real estate practices
– Methods to evaluate investment patterns,
investor profiles and opportunities
– Methods to develop a business network
– Promote properties, markets and services
• Networking is key to success
• Mix with classmates for next 5 minutes
• Find class members who have been to
or done the items in one of the boxes
• Have that person sign the box
• Move on to someone else
• First person getting a BINGO, call out
Interesting Facts
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World’s largest free-trade zone
Largest pocket of poverty in W. Hemisphere
Largest Japanese population outside Japan
30% of USA immigrants from Mexico
Americas contain over ¼ world’s land mass
USA, Brazil, Canada and Mexico GDP’s are
each 1 trillion dollars plus!
Course Guidelines
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Turn OFF cell phones
Periodic breaks
Lunch
Activities
Task groups
Final exam
Chapter 1
Review
Globalization
• What is it?
• How does it impact real estate?
• What do international investors
expect of their agent?
Capital Flow
• Expanding markets require foreign
capital
• Patterns of capital flow
• Supply and demand
• Investment return
• Currency, assets, credits, debt
move capital around the world
Currency
Investors
Buy real estate because of
the favorable trend
of their currency against the
foreign currency
Market Assessment
• Evaluate
– Real estate market
– Cultural influences
– Political influences
– Stability
– Population
– Local real estate practices
Market Assessment
 Free market philosophy
 Social harmony
 Democratic institutions
 Infrastructure
 Economic strength
Culture
Build relationships
Do not make assumptions
Cultural elements
Conducting Business
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Banks with international experience
Tasks similar to domestic transactions
Differences
Rewards
Currencies and Measures
Three Conversion Steps
Convert
Convert
Convert
The
The
The
Currency
Area
Time
Reciprocals
If you are converting: The Exchange Rate is:
USA$ to MXN pesos
US$1 = MXN10.6945
MXN pesos to USA$
MXN1 = US$0.0935
If you are converting:
The Reciprocal is:
US$ to MXN pesos
1 ÷ 10.6945 = .0935
MXN pesos to US$
1 ÷ .0935 = 10.6945
Sample Problems
Convert MXN850 to US$
0.0935 = US$ ________
79.48
MXN859 X US$ ________
[Currency unit] X [Exchange Rate]
Convert US$250 to MXN
10.6945 = MXN
US$250 X MXN ________
2673.63
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Converting Area
Conversion Factors
Square feet in 1 square meter = 10.7639
Square meters in 1 square foot = .0929
Square Meters to Square Feet
Formula
Meters X 10.7639
[Square Feet in a Meter]
Convert 1250 m² to square feet
10.7639 = _________
13,455 sq.ft.
1250 m² X _________
Square Feet to Square Meters
Formula
Square Feet X .0929
[Meters in 1 square foot]
Convert 20,000 square feet to m²
.0929
20,000 sq. ft. X __________
=
1858
__________m²
Price to New Area Denomination
Formula
Price or Rent X Area Conversion Factor
Problem
Apartment rents for 1000 pesos/m²/month
Rent in square feet would be?
.0929
92.90
1000 pesos X __________
= __________
pesos/sq.ft./month
Sample Problem
Office space rents for US$25/sq.ft./mo.
Rent in square meters would be?
10.7639 = __________
269.10
US$25 X __________
US$/m²/month
Convert The Time
IF:
Price is quoted per month
MULTIPLY by 12 to get price per year.
Price is quoted as an annual amount
DIVIDE by 12 to get price per month.
Putting It Together
Convert the Currency
.0935
258 pesos X __________
=
US$__________/m²/month
24.12
Convert the Area
24.12
.0929
US$ __________
X __________
=
2.24
US$__________/sq.ft./month
Convert the Time
2.24
12
US$_________/sq.ft./mo.
X __________
=
26.88
US$__________/sq.ft./year
Practice Problems
These problems may be done
as homework to apply the
formulas we just covered.
Chapter 2
Features of
The Americas
Objectives
• Define Americas region
• Identify major countries and territories
• Describe social and economic sub
regions
• Discuss treaties
• Evaluate business environments
• Identify market-unifying trends
Nations and Territories
• The Americas known as W. Hemisphere
• Consist of North, Central, South
America and islands of Caribbean
• Range from highly developed and
wealthy to undeveloped and
impoverished
• Contains 28% of world’s total land
mass
• Total GDP exceeds $8.6 trillion
Nations and Territories
35 Independent Nations
16 Dependent
Nations/Territories
Two Myths
1. Canada and the USA are NOT
identical.
2. South American countries are
NOT a monolithic cultural bloc.
Aboriginal
Mayan, Inca, Aztec
Colonial
Spanish, English, Dutch, French,
Portuguese
Immigrant
Voluntary and Involuntary
Religion
Indigenous animism, Roman Catholicism,
African animism, Protestant Evangelicals
Cultural Subgroups
• Much of North, Central and South
America is Spanish or Portuguese
• Canada is mostly English or French
• Various cultural groups distinguish one
country from another
Potential Investment Sites
Argentina
Brazil
Canada
Chile
Costa Rica
Mexico
Puerto Rico
United
States of
America
Venezuela
Geographic Subregions
• Smaller than continents, larger than countries
Canada
And
USA
Central
America
and Mexico
Andean
Countries
Argentina
Brazil
Caribbean
Economic Subregions
NAFTA
Southern CAFTA-DR
Cone
Andean
The
Countries Caribbean
Organization of American States
• Established in 1910
• Known as Pan American Union until 1948
• Encompasses all countries in the Americas
except Cuba
• Work for peace and justice
• Promote solidarity among American states
• Aid economic, social and cultural
development of the hemisphere
Inter-American
Development Bank
• Created in 1959
• Accelerate economic and social
development in Latin America
• Largest and oldest multilateral
development institution in region
• Has mobilized financing of $194 billion
• Lending in 2004 was $16.4 billion
Explore…
Exercise
2-15
Key Point Review
• The Americas are culturally, economically
and geographically diverse
• This diversity has led to the development
of subregions
• Notable regional differences
• Important for investors and agents to
know and understand
Chapter 3
Economic Trends and
Opportunity for Investment
Objectives
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Identify capital flow in Americas
Evaluate economic integration
Recognize role of offshore banking
Identify developments and reforms needed
to enhance investment climate
• Identify investment trends, risks and
opportunities
Market Characteristics
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Trade agreements
Offshore banking opportunities
Free trade treaties and agreements
Focus on increasing market size
Patterns of specialization
NAFTA
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North America Free Trade Agreement
Largest trading block in the Americas
2003 was the end of trade barriers
Represents 1/3 of world’s total GDP
Significantly larger than EU
All member economies have grown
US$1.7 billion/day in trilateral trade
PAECA
• Central American Economic Action Plan
• Approved in 1990
• Costa Rica, El Salvador, Guatemala,
Honduras and Nicaragua
• Goals include:
– Common tariff structure
– Cooperation rebuilding infrastructure
– Free movement of people and merchandise
– Elimination of trade barriers
CAFTA-DR
• Central America Free Trade Agreement
• Free trade agreement, not a treaty
• USA, Costa Rica, El Salvador, Guatemala,
Honduras, Nicaragua and Dominican
Republic
• Guarantee foreign investment
• Reduce government corruption
CACM
• Central American Common Market
• Common trade alliance—1963
• Costa Rica, El Salvador, Guatemala,
Honduras and Nicaragua
• Established free trade area with Mexico
– Help equalize trade deficit
– Spread benefits of economic expansion
• Considering similar agreement with
Venezuela
CARICOM
• Caribbean Common Market—1973
• Designed to remove barriers between
Caribbean countries
• 1991, common tariff on non-CARICOM
countries
• Largest countries now use tariffs
• Barbados, Guyana, Jamaica, Trinidad,
Tobago
CBI
• Caribbean Basin Initiative—1984
• 23 independent countries
• Goals:
– Promote economic development
– Expand foreign and domestic investment
– Diversify CBI country economics
– Expand CBI country exports
ANCOM
• Andean Group Common Market
• Colombia, Venezuela, Peru, Bolivia and
Ecuador
• Originally a free trade alliance called the
Cartagena Agreement
• Began free area trade phase in—1992
MERCOSUR
• Common market treaty between
Argentina, Brazil, Paraguay, Uruguay
• Market established in 1994
• Tariff barriers were lifted
• More than doubled trade in 20 years
• Multiple natural resources
FTAA
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Free Trade Area of the Americas
Introduced in 1994
Stalled in 2005 at Summit of Americas
If carried out, would create trading area
twice size of EU
• Would assist north-south capital flow
Off Shore Banking Centers
• Caribbean a major host to OBCs
• Do business outside jurisdiction where
they are chartered
• Attract foreign capital
• Deposits and loans in currencies other
than that of host country
• Bank controls are few, if any
• Considered a tax haven
Subsidiary/Affiliate
USA Firm
European Affiliate
• Exports to affiliate
• Pay USA firm through subsidiary
• Undercharge subsidiary
• Taxable income decreases
• Taxable income decreases
Subsidiary
• Overcharges Affiliate
• Shifts USA firm income from Europe to tax haven
• Low or no taxes apply to subsidiary in tax haven
• Taxable income increases
Tax Laws
• USA Tax Reform Act of 1986
– Limits or eliminates legal means of
deferring taxes on:
• Interest
• Dividends
• Capital gains
of subsidiaries until income repatriated
Latin America Regional
Trends
Latin America Challenges
Reducing Poverty
Settling Foreign Debts
Conserving Natural Resources
Adequate and Sustained Growth
Policy Reforms
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Depreciation of exchange rates
Dismantling trade barriers
VAT to replace taxes on foreign trade
Incentives for foreign investment
Needed Reforms
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Financial
Labor
Regulatory
Central bank
Administrative
Judicial and legal
Education
The USA
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Strongest economy in the world
Per capita GDP of $40,100
2004 real estate FDI was $1.709 trillion
Reasons for foreign capital inflow
Has net negative international position
Low inflation and unemployment
Long term problems
Mexico
• Hospitality-related properties
• Restructured companies
• Manufacturing facilities
• Hotel operating companies
Brazil
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Attractive investment target
Immense privatization effort
Large capital expenditures
Economy expected to continue
recovering and growing
Economic Indicators
Ecuador
2002
2005
Population (M)
13.4
13.3
GDP (US$B)
39.6
49.5
GDP/capita (US$)
3,000
3,700
% GDP Growth
4.3
5.8
Inflation
22
2
Unemployment
14
11.1
Population
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Challenge to economies of Americas
Puts strains on an economy
May not be enough jobs
Decline in GDP
Decrease in living standards
Increased poverty
Productivity Trends
• USA, Brazil, Canada and Mexico have
trillion dollar economies
• USA and Canada are most productive
• Bahamas, Argentina and Chile next
• Americas unemployment manageable
• Latin American countries with per capita
output of less than $5,000
– Bolivia, Ecuador, Guatemala, Paraguay
Key Points
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Renewed economic integration
Attractive to FDI in real estate
Capital flow needs to move more freely
OBCs and tax havens still important
Working to liberalize trade, privatize
business, achieve growth, conserve
environment and attract FDI
• Statistics/trends provide investment
overview
Chapter 4
How to Look at a Country
Objectives
Identify Investment Characteristics
Social
Political
Economic
International Market
Knowledge
International Markets
Do not make assumptions
Know your market
Knowledge increases your value
Knowledge reduces your risk
Knowledge increases opportunities
International is an exciting specialty
Experience personal growth
Knowledge Useful To:
Advise Outbound Investors
Work With Inbound Investors
Network Effectively
Be Aware Of…
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Sources of capital
Government structure and attitudes
The economy
Market landmarks
Local culture
Country Assessment Model
Data
• Factors to consider
• What the data can mean
• Favorable characteristics
Country Assessment Model
Geography
Culture
Real
Estate
Model
Components
Government
People
Other
Factors
Infrastructure
Economy
Sample Analysis
 Use current data
 Multiple resources
 Expand or modify the model
 Interpret data to meet objectives
Sample Analysis
Group Activity
Working With an Inbound
Residential Investor
Working With an Outbound
Commercial Investor
Group Activities
Key Point Review
 Know as much as possible about a
country
 Understand its potential for investment
 Provide meaningful information for
potential investors
 The Country Assessment Model is a tool
for evaluating markets
Chapter 5
Working in the Americas
Mexico
Objectives
 Assess real estate markets for activity
and opportunities
 Integrate country-specific cultural and
business knowledge
 Incorporate crucial aspects of
cultivating relationships
 Review key elements of a transaction
FDI in Mexican Real Estate
1. Improvement in Mexican economy
2. Liberalization of investment and
ownership laws
3. North American Free Trade
Agreement
Commercial Properties
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Multiple opportunities
Little or no speculative development
High-rise office markets in big cities
Buildings constructed by user
Built for specific purpose
Occupied indefinitely
Residential Properties
• More speculative than commercial
• Financing
– Self
– Government-subsidy
– Subdividers
• Population increase causes shortage
• Growing cities need new housing
Vacation Ownership
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Timeshares, apartments, resort clubs
Mexican, Canadian and USA buyers
1993 Foreign Ownership Law Revision
Higher developer credibility
Government regulation
Fideicomiso
• Established in 1972
• Bank trust encourages foreign
investment
• Allows foreigners to hold real estate
rights in restricted areas
• Authorized institutions hold title
• Foreign owner is beneficiary of trust
• Trust can be renewed indefinitely
Agricultural Land
• 1993 Foreign Investment Law
– Allowed foreign nationals or their
companies to own agricultural land
• Small farms yielding to foreign
agricultural firms
• Mexican authorities expect the land to
be purchased after leasing period
Maquiladoras
• Foreign owned factories
– Employ Mexican labor
– Assemble products sold in foreign market
• Mexican government incentives
• Low industrial vacancies in
established maquiladora cities
• Foreign manufacturing sector growing
at 18%/year
• Agromaquila fastest growing industry
Hotel/Resort Properties
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Expanding in Mexico
Conversions, rehabs and new construction
USA investors prefer existing properties
European investors prefer to build
80% existing properties not franchises
Golf courses have great potential
Marina market is strong
Three Professional Skills
Networking And
Relationships
Technical Aspects
of a Transaction
Selling and
Marketing
Who You Need to Meet
Potential
Colleagues
Clients
Owners
and
Sellers
Connections
to all
Where to Find Them
General Attitudes
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People more important than time
Will be late for meeting to talk to a friend
Punctuality is not business standard
Two-three hour lunches common
Many public and religious holidays
Literacy rate 88% and rising
Language
Importance of Family
Access to Information
Mordidas
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Bribe, kickback, payoff
May be punishable under criminal law
Can be very expensive
Effects may not last
Undermines integrity and reputation
Hinders internal accounting controls
May damage or destroy relationship
Elements of a Transaction
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Brokerage Practices
Contracts and Notaries
Timeshare Regulations
Foreign Ownership Limitations
– Forbidden Activities
– Minority Ownership Activities
– Majority Ownership Activities
– Unrestricted Activities
Taxation
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Non-residents pay 20% of sales price
Corporate income rate is 35%
Withholding tax of 35% with stipulations
Royalties subject to 40% withholding
Asset values may increase with inflation
One-time deduction for newly purchased
assets
• Deduction amount is set by law
Financing
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Foreigners not discriminated against
USA entities provide loans
Title insurance now available
Increased buying stimulus
Variable costs
Fideicomiso
Leases
• Commercial
– Net leases
– 1-3 years
– Limited options and indexed rents
• Residential
– Minimum 1 year
– Payments in local currency
– Rent increased annually
Listing Guidelines
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Mexico is a big country
Exclusive representation arrangement
Consider joint ventures
Information is protected
Reliable appraisals are hard to find
Marketing Properties
• Presentations are low-key and leisurely
• Resort properties often marketed onsite
• Additional resort property marketing
– Information booths in town centers
– Presentations for hotel guests
– Referrals by restaurant
hostesses
Negotiating and Closing
• Request for proposal
• Direct negotiations
• Price agreement reached
– Buyer pays 10-50% of purchase price
• Balance due at closing
• Notary handles the money
Key Point Review
• Learn as much as you can
• Establish a strong network
• Work with capable and trustworthy
partners
• Expect things to move differently