Why do we care if China and India are experiencing a surge in the growth of the middle class that should continue for decades to come? We’re not suggesting you buy property in China, so how’s this explosive expansion going to help you if you own a portfolio based in the United States?
We’ve talked in the past about how you should focus on finding ultra cheap land with an expensive improvement already on it. This is the Land to Improvement Ratio or LTI. Remember how we define these homes, apartments, or shopping centers? We call them packaged commodities because they are nothing more than a collection of wood, steel, copper, etc. So when you invest in real estate with an improvement already in place, you’re actually investing in commodities.
Here’s where the Chinese connection comes in. As more people in China and India join the middle class, the demand for these basic commodities will rise. An entire new infrastructure will need to be built: roads, sewers, schools, buildings, homes, everything that is associated with upward mobility of a society. Who stands to benefit from this phenomenon? The person holding title to property, of course.
Sure, we’re in the midst of a foreclosure crisis that seems to be dragging home prices down but, odds are, it’s going to run it’s course. When the China factor kicks in good here in a few years, expect property prices to go up a whole bunch. Which makes it a very good time to be buying…right now!
Flickr / kylemac
