There are five distinct stages of land development in emerging markets each characterized by different land-use and types of buyers.
We use Market Stages in order to provide a framework for evaluating a market, property, and business plan.
The land is valued based on its value to the local community. Economic potential based on international valuation has yet to occur. So a location with a fantastic view or right next to a beach isn’t any more expensive than a nearby plot with similar value to the local economy.
There are Stage 1 areas all over Central America. Stage 1 areas may have great potential. Some may even be developed one day, but many will never realize the value that a global market would bring.
Buyers at Stage 1
In addition to locals trading property based on its value to the local economy, a Stage 1 buyer is like a pioneer with an eye for potential. They often have to enter on a horse or a boat to find the area, and they realize the difference between an excellent piece of land and a merely adequate piece of land. Sometimes they have a long-term goal for a return, but mostly they just love the area and the land is less investment and more passion.
Signs of Advancing to Stage 2
As international buyers with a new end-use for the land move in to the market, it’s beginning to move to Stage 2.
Early buyers recognize more global commercial potential and speculate on higher future value. There is no evidence of an international market for these properties at this time. Buyers are lured to the area by the opportunity to enjoy their own gorgeous piece of land at a ridiculously low price.
Often these properties have no road access or utilities, but buyers at Stage 2 can also heavily influence how the area develops by establishing the tenor of development as other investors seek to build complementary businesses.
Buyers at Stage 2
Speculators who also enjoy adopting an area, influencing how it grows, and then seeing it mature according to their vision.
Signs of Advancing to Stage 3
Word begins to spread locally about the price paid driving the price up as speculative buyers begin to purchase. As the price, and value, goes up, more money is drawn to the area feeding the cycle.
Many of the early buyers who purchased larger pieces of land for much less start to sell off small parcels from their property at a much higher price.
Stage 3 buyers who expect infrastructure, services and community to be there or to be arriving soon start purchasing land.
Smaller lots go on sale with a few houses popping up. The region doesn’t look much different from a Stage 2 area as very little building is happening. Most of the transactions are still speculative. Building of very basic amenities begins.
Buyers at Stage 3
Buyers start picking up smaller parcels and lots from the early large-scale speculators. A hand-full of small-scale buyers build houses, but most are speculating and plan to sit on the land a bit before building or selling. Selling of nearby large-scale pieces continues.
Signs of Advancing to Stage 4
Someone begins offering a cohesive residential product, like a subdivision, and people start to move in. The various businesses offering services to that residential base soon follow.
For the first time, you begin to see a critical mass of residents creating community infrastructure including restaurants, grocery stores and tourism businesses. A significant number of tourists decide they like the area so much that they want to settle and a lot more residential housing appears. Larger businesses like supermarkets and hotels start to appear as Stage 4 progresses.
The area begins to be recognized for what it is rather than its potential as businesses and community become established.
Buyers at Stage 4
Individuals, entrepreneurs and businesses looking to live, work and do business in the area start buying the properties. Simply flipping undeveloped land is a much more difficult business model in this stage.
Signs of Advancing to Stage 5
The big chains start building and plans for a full complement of amenities and advanced infrastructure emerge.
A full-scale large town with all of the typical commercial infrastructure, including a range of grocery, restaurant and entertainment options, medical services and maybe even an airport. Tourism is no longer an essential driver of growth as other forms of industries and incomes are established.
Buyers at Stage 5
There are all sorts of buyers mostly with the common characteristic that they plan on using the land.
Using the Stages
Each stage presents unique opportunities and challenges. By understanding these stages the investor has a better framework to evaluate a market and make better decisions.