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Investment Analysis

DATA: Definitions, Assumptions and Sources

by GLOBAL PROPERTY GUIDE

Jan 06, 2008


Capital Gains Tax (Average)

A tax on the difference between the property's value when bought, and when sold.

Assumptions:

  1. The property is directly and jointly owned by husband and wife;
  2. They have owned it for 10 years;
  3. It is their only source of capital gains in the country
  4. It has appreciated in value by 100% over the 10 years to sale
  5. The property was worth US$250,000 or 250,000 at purchase.

Note: We do not include so-called capital gains taxes, if they are actually merely transaction taxes. An example would be a tax of 12% on the sale value. Conversely in some countries there are some taxes which are really Capital Gains Taxes, but are not called by that name. Obviously, these are included in our computation.

Source: Global Property Guide Research

Currency +/- Valuation

This is a cost of living indicator. It roughly shows how much a bundle of goods costing US$1 in the US would cost in another country. We use the IMF's nominal GDP and PPP GDP figures.

Note that currency undervaluation (as measured by PPP) is not a good predictor of future currency movements.

Source: Calculated using figures from the IMF World Economic Outlook Database.

Economic Freedom Index

How free is a country's economy? The 2006 Index of Economic Freedom measures 161 countries by 50 criteria, divided into 10 broad groups.

Low scores are more desirable. A higher score (on a scale of 1 to 5) means more government interference in the economy, and less economic freedom.

  • Free - 1 .99 or less;
  • Mostly Free - 2.00 to 2.99;
  • Mostly Unfree - 3.00 to 3.99; and
  • Repressed - 4.00 or higher.

Source: The Heritage Foundation and the Wall Street Journal

Economic Freedom Index - 5 Year Change

Increased economic freedom is strongly associated with high GDP growth. We measure the change in the freedom score over five years:

  • Greatly Improved
  • Improved
  • Neutral
  • Worse
  • Much Worse

Source: The Heritage Foundation and the Wall Street Journal

GDP Per Capita (2006)

The national output, divided by the population, expressed in U.S. dollars per person.

Source: IMF World Economic Outlook Database

GDP/Cap Growth - 1 Year

The percentage change in GDP per capita from 2004 to 2005.

Source: IMF World Economic Outlook Database

GDP/Cap Growth - 5 Years

The average annual percentage change in GDP per capita during the five years to 2005.

Source: IMF World Economic Outlook Database

Growth Competitiveness

The Growth Competitiveness Index (GCI) aims to quantify the quality of the macroeconomic environment, the state of a country's public institutions, and its level of technological readiness.

Higher competitiveness scores are more desirable:

  • Very low (0-3.00)
  • Low (3.01-3.50)
  • Medium (3.51-4.50)
  • High (4.51-5.50)
  • Very High (5.51-7)

Source: World Economic Forum

Landlord and Tenant Law

The amount of control landlords have over their property, measured on a five-point rating scale:

  • Strongly pro-landord
  • Pro-landlord
  • Neutral
  • Pro-tenant
  • Strongly pro-tenant

Source: Global Property Guide Research, Contributing Law Firms

Read Landlord-Tenant Law Rating System for more discussion.

Price Change 1 Year

The annual (year-on-year) percentage change in house prices from 2004 to 2005, or the latest data available, not adjusted for inflation.

Source: Various sources, see specific country notes below

Price Change 5 Years

The percentage change in house prices over five years from 2000 to 2005, or the latest data available, not adjusted for inflation.

Source: Various sources, see specific country notes below

Price Change 10 Years

The percentage change in house prices over ten years from 1995 to 2005, to the latest year for which data is available, not adjusted for inflation.

Source: Various sources, see specific country notes below

Price per sq. m. Premier City Centre

Per square metre (sq. m.) prices for properties in the center of the rental market.

For the Caribbean and the Pacific (except for Australia and New Zealand), we report prices for beachfront properties.

For the rest of the world, we report the price of properties in the centre of the 'premier' city, i.e., the country's most important city, either the administrative capital, and/or the commercial capital, and/or the financial capital.

Source: Global Property Guide Research

Price to Rent Ratio

The price/rent ratio is the rental return, expressed as a fraction of the total purchase price. This ratio is similar to the P/E ratio commonly used in measuring stock values. Just as in the stock market,'value' investors tend to buy high-yielding stocks with low P/Es, so in the housing market cautious buyers are likely to choose high-yielding houses.

Source: Global Property Guide Research

Property Rights Index

The 2006 Property Rights Index, a subcomponent of the Index of Economic freedom, measures the degree to which a country's laws protect private property rights, and the degree to which its government enforces those laws.

It also assesses the likelihood that private property will be expropriated and analyzes the independence of the judiciary, the existence of corruption within the judiciary, and the ability of individuals and businesses to enforce contracts.

The less certain the legal protection of property, the higher a country's score; similarly, the greater the chances of government expropriation of property, the higher a country's score.

Low scores are more desirable (on a scale of 1 to 5).

Source: The Heritage Foundation and the Wall Street Journal

Rental Income Tax (Average)

The average annual income tax payable jointly by a foreign-domiciled couple, owning and renting out an apartment/property in the country, assuming that the most tax-efficient form of rental is chosen, and maximum reasonable and safe allowances, deductions, depreciations, and expenses, are deducted.

Source: Global Property Guide Research, Contributing Accountancy Firms

Rental Yields

The gross annual rental income expressed as a percentage of today's property purchase price. This is what a landlord can expect as return to his investment. .

Source: Global Property Guide Research

Roundtrip Cost

The total round-trip cost when buying property, inclusive of costs paid by sellers and buyers. Expressed as percentage of the property sale price.

Source: Global Property Guide Research, various sources.

Taxes on Residents

The percentage of gross earnings given up in tax, including any social security contributions. Calculated for a single worker without children, earning 100 % of the average wage, for selected OECD countries.

Source: OECD Tax Database

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