Global real estate sector outlook: 2020 and beyond
The world is in turmoil but how safe are your real estate investments and where will they generate the most return?
Property has almost always been a safe bet. In a world of intangible assets, a bricks-and-mortar property is something you can see and touch, even live in if times get tough. But with increasingly uncertain times is the real estate market still as “safe as houses” or is it as risky as other, more volatile, investments?
Like the rest of the world, the real estate investment sector is undergoing a rapid economic and social transformation.
According to the PWC Real Estate 2020 Building the Future report, global stock of institutional-grade real estate will expand by more than 55 per cent from US$29.0 tn in 2012, to US$45.3 tn in 2020. The company also estimates that the stock may then grow further to US$69.0 tn in 2030.
The report suggests that government regulation is pushing sustainability up the real estate agenda and tech is impacting property economics. It also says that the sector will play a greater role in the financial ecosystem, moving into the space left by banks.
This huge expansion in investable real estate will be greatest in emerging economies, PWC predicts, where economic development will lead to better tenant quality and, in some countries, clearer property rights. Cities will present opportunities ranging from low risk/low yield in advanced economy core real estate, to high risk/high reward in emerging economies, according to the PWC report. We’re seeing the greatest social migration of all time – principally in emerging economies – and this, it’s believed, will drive the biggest-ever construction surge. However, technology will also disrupt real estate economics, making some types of real estate obsolete.
The Brexit impact
In the UK, there has been a significant increase in international buyers looking to invest their money in prime central London, says Edward Heaton, founder and managing partner of buying agents, Heaton & Partners. “They are attracted by a weak sterling as well as the drop in house prices in the capital over the past few years. Their view is that regardless of the outcome of Brexit, that once there is certainty both sterling and house prices will pick up. This is not to say prices have increased yet but there has definitely been more activity.”
A Brexit deal will provide clarity, but London is still heavily reliant on global investment and foreign buyers. However, says Heaton, “After the UK failed to leave the EU at the end of March, the floodgates opened and there was a buying frenzy that lasted through to the summer. As autumn arrived and another Brexit deadline approached, the country market is almost completely stagnant again. You have triple whammy of a general election, Brexit and Christmas all looming. Why on earth would anyone choose to sell their house right now?”
The post-Brexit bounce
Worldwide, “Currency brokers probably haven’t been as busy for a while, with investors looking to lock rates (for up to 12 months) in order to capitalise on any post-Brexit bounce,” says, Guy Bradshaw, head of London Residential at Sotheby’s Realty UK. He adds, “They are well placed to trade at the low levels of the pound even if sterling strengthens throughout 2020. These ‘savings’ alone negate the excessive SDLT [stamp duty, land tax] charges imposed and cover the associated buying costs to create an opportunity in a confused marketplace.”
Bradshaw says: “We have seen international buyers in particular using the currency play to their advantage and timing their investments accordingly.” He adds, “Personally, I have weekly phone referrals from our USA network, with investors and buyers looking at London as an ‘opportunity’ or asking me ‘if the time is right to invest in London’.”
Watching the clock
Timing on any investment is key and property is no different, says Bradshaw, “Turning to examine the Chinese Yuan (RMB) in August 2015 the rate was £1=RMB 10.1 and August 2019 it was £1=8.42 RMB as of 1 November £1=9.11 RMB.” This has encouraged Chinese parents to make use of the UK property deals to cover school fees and associated costs, while providing some of the best accommodation for their children when they come to the UK to study.
Bradshaw says Sotheby’s Real Estate is are advising investors not to delay “for fear of missing out on the opportunity an advantageous currency has potentially put in their favour – a situation which may well not occur again for a while. This year, there have been some significant sales reported in the Super Prime market. When you take into account the buyer nationality and currency likely used for these sales, you can see why the timing may be now to invest...”
Elsewhere, high-net-worth individuals have started to turn their sights to countries offering golden visa programmes. “To date, there are 20 European Union (EU) countries offering golden visas resulting in residency and potential citizenship of the EU, with Britons favouring a number of these from both a lifestyle and financial perspective,” says Sean Gaskell,managing director of global financial solutions Geneva Management Group. Countries such as Portugal, Malta and Ireland are prepared to offer residency in exchange for the purchase of a property or investment of a particular value but, Gaskell says, “these three also offer added value in quality of life and economic growth.”
Portugal, in particular, is becoming a popular choice for Britons who may be looking elsewhere, with many real estate experts looking to Lisbon as one of the most enterprising cities in which to invest in 2019, says Gaskell. “Its own golden visa programme launched in 2012 and grants residency permits (after five years) and EU citizenship (after six years) to investors who are prepared to spend €500 000 or more on property.” In Portugal, 2018 saw a 12 per cent rise in house prices from the previous year, while Lisbon has seen an increase of 60 per cent during the past five years. US-based financial ratings agency S&P predicts that Portugal will be one of the countries with the highest price increases between now and 2021.
As Brexit beckons, the EU is trying to crack down on countries providing golden visas. But, says Gaskell, “Many countries in Europe offer investment programmes and have very competitive tax rates. In these cases there is often a limitation on how long an individual can access these. But, at the end of the day, these are sovereign issues, as is taxation. We live in a world where capital flows freely in a competitive global market and most countries are competing to attract the affluent and drive their own growth objectives.”
While the Asia-Pacific region has been suffering thanks to trade disputes, Japan’s housing market is expected to remain healthy and construction is buoyant thanks to the 2020 summer Olympics. Real estate in China, on the other hand, is close to destruction with political economist Dr Shirley Ze Yu writing in the South China Morning Post recently that the property bubble is closer to a collapse than at any point since 2003.
Beyond 2020 and blockchain
The real estate investment market is likely to be greatly influenced by the advent of blockchain technology, says Ilia Obraztsov, CEO of Smartlands, a digital securities issuance and investment platform. “It’s already happening,” he says, “there are tokenised properties in the UK, US, Germany, France and other countries.” Digitising property shares is a novel approach in the investment space and, says Obraztsov, “Its impact will be similar to the way e-commerce businesses disrupted brick-and-mortar stores.”
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