When dealing with real estate, it’s important to have a fundamental understanding of why some properties hold their value and others don’t. Many people ask whether real estate is more expensive now compared with yesterday. Unfortunately, there’s no clear answer, because it depends on so many factors. Economies change, laws change, people and populations change, demand and supply change, and politics and the environment change—all affect how people perceive real estate. In most areas, the demand changes depending on all of these factors. In some areas, such as the Hamptons, Beverly Hills, the French Riviera, and Marbella, the demand and supply remain fairly static. All of these are desirable communities in different parts of the world. They are in stable countries that have relatively stable governments. Compare these places with Beirut, Havana, Malaysia, Sri Lanka. These are desirable areas as well, but the political issues concerning these areas make investment real estate more difficult.
When investing in real estate, it’s important to take a long view to see how economies and trends play out. For instance, fifty years ago, the German economy was in the midst of recovering after World War II. The exchange rate was then four marks to the dollar. To Americans, the exchange rate made property in West Germany appear to be very inexpensive compared to similarly priced properties in the United States. During the same time, the United States was experiencing an expansion of the real estate market. Recognizing that a large factor in the price of property was the exchange rate resulted in shrewd Americans buying real property in West Germany for investment purposes. And an added advantage was that Germany was successfully rebuilding its economy with generous Marshall Plan funds and new investment opportunities. To give you an example, let’s compare a property in Germany and one in California over a fifty-year span of time.
In 1956, the property in Germany sold for the equivalent of $18,000. In 2006, it sold for $3.2 million. Located in the state of Bavaria in the southern part of Germany, here’s what you got:

Lakefront property, three acres; main house has two stories, with three bedrooms, one bath, living room, dining area, and kitchen. The guest house has two rooms and a garage. Thirty miles south of Munich.

The property in California, which sold for $18,000 in 1956, sold for $1.1 million in 2006.

Architect-designed one-story home, with four bedrooms, two baths, living room, dining room, family room, eat-in kitchen, and garage. A third of an acre in a secluded community fifteen miles north of San Francisco.

In these two examples, the following issues come into play. You have a war-torn country that was in the midst of economic recovery, and a state that was in the midst of prosperous growth located in a country that suffered little damage during the war. Both areas remained desirable and continued to prosper. Which investment would you have chosen? Where you buy, when you buy, and what you buy is the same everywhere. But when you are investing abroad, you have to add the exchange rate.
An investment in a war-torn, unstable country where investments are inexpensive and the dollar is strong may pay huge dividends some time in the future when the country stabilizes and rebounds. This is occurring in some countries in South America. But some countries are in areas where recovery is always in question because they are in the crossroads of competing interests or conflicting religious differences or have desirable natural resources. These factors must always be in the forefront when considering your investments.