How I Invest in Real Estate in Emerging Markets

Ladislas Maurice

Earth
Real Estate
Long-Term Investor

Who are you and what’s your story?

I’m Ladislas Maurice, the founder of The Wandering Investor (www.thewanderinginvestor.com). I started investing from the age of 9 when I bought chickens, chicken feed, and started selling eggs to neighbours and family :).

My “real” investing career commenced when I started making good money moving up the executive ranks at the multinational food company Nestlé.

At the age of 30, after a few years on the executive board of Nestlé Ghana spent managing the dairy business for a few West African countries, I left corporate to dedicate myself to my true passion, which had always been investing. Since then, I’ve done real estate deals on four continents and have invested in a wide array of asset classes. I started The Wandering Investor as my friends kept asking me what I’m doing as they kept seeing pictures of me in exotic places, but without a “job”. 

I now use this blog to document my investing and internationalization journey and hope to inspire and help people along the way.

What do you invest in?

I’ve come to be known as the emerging market real estate guy. It’s my absolute most favourite asset class. I like buying into macro stories of positive demographics and/or economic revival/reforms. In many such countries, listed equities are either non-existent, have few catalysts, or are simply not liquid enough.

However real estate is not only a hard asset, which is reassuring in the current environment, but often has multiple catalysts in place, especially cultural as real estate is the first thing people invest in as soon as they can afford to.

Additionally, I invest in listed equities in frontier markets such as Uzbekistan. Diversification is key, so I also invest in commodities and hold “normal” stocks in traditional markets such as North America, Europe, Asia, and Australia.

Walk us through your process of identifying and executing on investment opportunities?

My first step is always to do a macro analysis of the country. Is it investable? Are there any catalysts? What are the risks? 

If I decide that this is a macro-environment that I want to get exposure to, as it fits my own personal financial objectives, then the next question is: How do I play this macro story? Real estate, private equity, locally listed equities, or listed equities somewhere else?

Typically, I spend at least a month on the ground meeting with lawyers, investors, local and foreign businessmen, agents, and consultants to get the full picture. I then drill down and focus on one of the asset classes, if it is an asset class I am comfortable with, and go shopping. 

In many cases, there is a wide discrepancy between what one can read in Western media and the realities on the ground. Western media is afflicted by groupthink from a class of similarly educated people.

I have absolutely no issue doing deals and investing in “risky” markets such as Ukraine, Uzbekistan, Nicaragua, and African countries emerging from civil war. I firmly believe that with good legal support risk is actually quite minimal.

I do place extra value on liquidity. I wish to minimize my exposure to completely illiquid investments as I am a full-time investor. If I were still working, then it would be less of an issue.

Since you first started, what have you learned that has had the biggest impact on your success and the growth of your portfolio?

Investment theses such as “It’s an OK investment and I really like this area so could use it as my holiday home” will lead to suboptimal returns.

You need to be very clear and honest with yourself: What is your objective? What is the true thesis supporting this investment?

Some of the biggest mistakes I made in the past were getting emotionally involved in an investment, and gradually changing my thesis to fit my own narrative or wishes.

I remember having real estate in a heavily oil-dependent country and justifying its poor returns with “the price of oil will go back up because there hasn’t been enough spending on exploration globally and I’ll sell at that point”.

  1. I do believe we will see a raging oil bull market driven by supply deficits
  2. But then I should just sell the real estate now, accept the loss, and rotate into oil equities to fully capture the upside

My other mistakes were buying deep-value assets, but that didn’t have any catalysts for growth. It was fine when I worked because it was the safest way to play the market and patience worked in my favour as I waited for a rerating. In the meantime, I could focus on my career.

But now that I invest full time, I do not have the luxury of being passive to such an extent. I still hold long-term deep value plays in my portfolio, but I’ve reduced my exposure to the ones without clear catalysts.

What advice would you give to someone who’s just starting?

I have two mottos in my investment life:

  1. Don’t be cheap.

If you go to a foreign country to buy real estate, then make sure to hire a good lawyer. Actually, hire the best. It’s the cost of doing business abroad. Often, when I talk about the prices my lawyers charge, I get smart comments such as “my lawyer can do it for half the price”. Great. There’s always a cheaper lawyer out there.

This is why I am able to invest in “risky” places and get significant upside because I de-risk substantially by hiring the right people.

Secondly, pay for advice. In some countries, when I get involved in a large project, I hire consultants and pay for advice. I know it’s not a great feeling, but they prevent you from making expensive mistakes. The ROI is well worth it.

In some cases, it can be as simple as paying for a newsletter subscription. When I reached the conclusion that I wanted more exposure to commodities, I acknowledged that I knew nothing about the space. So I subscribed to a few newsletters written by experts in the field. The reality is that the best content is rarely free.

  1. Admit that you know nothing

I actually really do know nothing. The world is too complex and so little is understood. There is always the possibility that you might be wrong. Always question your theses. How could you be wrong? 

True experts understand that they don’t know much at all, and merely hope to understand a bit more than others. When I pay for advice, I pay to reduce my lack of knowledge about a topic (not eliminate it, this would be wishful thinking), and look for people who are humble enough to understand they might be wrong.

What investment opportunities are you excited about at the moment?

I’m very excited about Uranium. The investment thesis is extremely strong, and if there is no nuclear accident, almost mathematical. It is also almost completely unrelated to the current virus situation and has its own cycle that isn’t dependent on the state of the economy. It is a truly unique investment opportunity.

Real estate in Kiev, Ukraine, is particularly attractive. In a world of 0% interest rates and bubbles everywhere, the state of the real estate market in Kiev is extremely healthy. Prices have bottomed out, they are down 70% from the peak, have been consolidating for a few years, and prices have started looking up.

It is a market with almost zero lending, so real estate there is a true hard asset and not a partially financial asset as in the West. If interest rates were to rise in the West, prices would get obliterated. Kiev offers the highest rental yields in Europe. In the residential market, one can get gross yields of 7%-9% and 18%+ in the office market. It’s quite incredible and I have written and done videos about it on my blog.

As Ukraine already went through war, emigration, devaluation, IMF bailouts, high inflation, and multiple revolutions, it feels like you can throw anything its way and real estate prices won’t go down any more. The downside risk is limited, and prices are low for a capital city of nearly 5 million people. In this case, the play is to buy cheap, wait for a rerating (there are multiple catalysts), and in the meantime enjoy high rental yields.

Thirdly, I love the Uzbekistan story. It’s a country in Central Asia that is undergoing massive reforms following decades of communism. The economy is growing fast, the population is youthful, hardworking, and talented, the country has natural reserves, low debt levels, a strong industrial base, and is rolling out the red carpet for foreign investors. China, Russia, Korea, Turkey, India, Gulf monarchies, Europe and the US are all investing heavily in the country.

Many companies on the Tashkent Stock Exchange are severely undervalued and pay high dividends. Needless to say, I am long Uzbek equities.

Lastly, something that nobody in the West is looking at is the New Administrative Capital that is being built in Egypt. Cairo, currently with a population of 20 million, is projected to reach 38 million by 2050, which its infrastructure will not be able to manage.

So the government is building a brand new capital city 35 miles east of Cairo, which will house 6.5 million people, as much as Madrid. This city is currently built, it’s happening. It’s not a pipe dream. It’s essentially a new Dubai, built by Egyptians for Egyptians.

The New Administrative Capital will house all ministries, will host the largest expo center in Africa, the tallest building in Africa, the presidential palace, a new airport, etc. All these projects are being built, and there are already active universities, schools, churches, and mosques.

What makes it interesting, it that foreigners are allowed to buy off-plan property, and 10 year loans in Egyptian pounds can be obtained by non-residents. If you are a cash buyer, you can buy luxury off-plan apartments for $500-$600 per square meter, which is great value. Finally, the government offers a government guarantee to investors. So if the developer goes bust, the government will either reimburse investors or complete the project.

I wrote a whole article on my first-hand experience looking at real estate investments in Cairo and the New Administrative Capital.

 

Egyptian government guarantee for investors in the New Administrative Capital

Why is having a Plan B so important to you?

I think these times have taught us that the level of uncertainty is almost unfathomable. 

The same can be said about the level of propaganda and disinformation in media, coming from all political sides.

Everything you thought was true, might not be true. Everything you thought was not true, might be true. Who knows? You need to look at everything critically and have contingency plans in place.

This is where having a plan B is important. You might think your country is safe for someone like you, but is it really? Safety is not just related to physical safety, but also safety of thought, safety of accumulating capital, and safety of being able to move capital around.

Having a plan B, in case you are wrong about your main jurisdiction, has become ever more important. Get multiple bank accounts overseas, get a second residency, buy international real estate and obtain a second citizenship. Buy true freedom.

In these uncertain times, you owe it to yourself and your family. Ask Russian aristocrats in 1916 who thought they, and their capital, were safe. Ask German Jews in 1932 who thought they, and their capital, were safe. Things change fast. Aim for the best, be an optimist, but allocate a small part of your capital to prepare for the worst. Because. You. Could. Be. Wrong.

Can you share a story about an investment opportunity that you passed on and went on to grow beyond your expectations?

I tried to buy a bunch of altcoins in late 2016, but couldn’t because my bank was causing me problems with wires to crypto exchanges.

I would have made hundreds of thousands of dollars from that $5,000 investment

My key learning: Good banking is priceless. My banks are all expensive but provide exceptional service. A bank offering poor customer service is a no-go and will end up costing you a lot more in missed opportunities, especially if you invest internationally.

Where can readers go to learn more about you?

I really encourage readers to subscribe to the free Private List on The Wandering Investor, this way you don’t miss out on any investment and residency research. I also have a Youtube channel. For those who want to follow me as I travel around the world, my Instagram profile can be quite entertaining at times.

Thanks to
Ladislas Maurice

 for doing this interview.

If you have any questions or comments, leave a reply below.

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