Investing in real estate, whether directly or through REITs, can offer opportunities other investments don’t—particularly since, as the old saw goes, they aren’t making any more of it. It carries unique problems as well. Here’s a look at the top five trends in global real estate investing.
1. Australia’s slowing down. Real estate has been a hot topic in Australia for the past year, with housing prices booming and tighter availabilities boosting rents as well. However, May budget actions by the Australian government to boost taxes and cut spending have taken a toll on both homebuyers and renters, causing home prices to drop for the first time in a year. The market had been so hot that the price trend for the 12 months up to May had been up in the largest cities, which gained 10.7% for the period.
But that’s changing. In fact, all major Australian cities with the exception of Darwin and Canberra lost ground. Average home prices for the month of May for the eight largest Aussie cities lost 1.9%, the largest one-month drop since December of 2008. Melbourne suffered the most, falling 3.6%.
Approvals for new construction or renovation, according to the country’s statistics bureau, had already slackened. They dropped in April by 5.6%; it was the third straight month of decline.
But the new downward trend isn’t uniform. While high-end spenders’ interest in the purchase of property has waned a bit—with homes in the top 25% showing the biggest decline in value—0.5%—for the three months ending in May, on the other end of the spectrum, the cheapest housing actually gained 2.8%.
2. Spain’s heating up. Long regarded as a money pit for real estate investments during the financial crisis, Spanish properties are suddenly in demand.
It could have something to do with the fact that prices have fallen—sometimes as much as 50% from where they were at the height of the housing bubble—and suddenly everyone, even fund managers John Paulson and George Soros, seems interested in everything from homes to commercial properties. Paulson and Soros have put a sizeable amount of money into Spanish property investment vehicle Hispania, managed by Spanish investment firm Azora.
Even the whimsical is attracting attention, with KKR having purchased 49% of the Port Aventura theme park in Tarragona. The company also plans investment in hotels, offices and commercial properties.
And Germany’s Commerzbank put together a $5 billion sale of Spanish property loans with JPMorgan and private equity firm Lone Star; the deal was codenamed “Project Octopus.”
3. Singapore is sprawling. Workers in the thriving city are looking for cheaper, better places to live outside the city, and have overflowed the boundaries of the island state to seek homes in Johor in Malaysia and the Riau Islands of Indonesia. The trend, which has become so popular that it has given rise to its own acronym—Sijori—means that Singaporean workers can afford to own their own homes and have money for amenities that they could not otherwise afford.
Trading a short commute for a trip that can instead take a couple of hours, what with border checks and traffic congestion, may seem counterintuitive. But to its participants it makes sense. From a global perspective, the trend is knocking down the boundaries among the three nations involved for an economic expansion trend that encompasses all three.
Singapore’s population density is approaching that of New York, while it has become prohibitively expensive—one of the most expensive places to live in the world. The migration of workers from Singapore to Johor and the Riau Islands has not only meant an expansion of the economy in the latter two nations, but also a broader labor pool on which to draw for the city that started it all. That’s resulted in projected growth for the Sijori region of 5.7% per year through 2020, according to projections by National University of Singapore Business School assistant professor Toh Mun Heng.
As a result, real estate development is thriving in everything from private homes to apartments, malls and spas—even factories, as some companies move their manufacturing operations from Singapore to cheaper locations in one of the other two countries.
4. Dubai is simmering. While financial authorities in the UAE have started to put on the brakes in the Dubai real estate market and seen home price gains slow a bit in Q1, the country’s central bank is warning that the real estate sector is overheating.
Q1 2014 growth in Dubai home prices rose by 3.4%. That’s substantially better than Q1 2013, in which they gained 9.2%. But that’s small consolation when for the year ended March 31, 2014, the gain was 27.7%—making Dubai the hottest market in the world.
The mushrooming growth is fueled by foreign investment and equity buyers, since the country’s central bank said that bank financing for residential property purchases could not even account for 30% of what was sold in 2013. As a result, it said, the country’s banks cannot be driving the boom. It described the market as “overheating.” In May, the International Monetary Fund (IMF) warned that Dubai might need to clamp down harder on speculation.
5. London may be boiling. While U.K. housing prices in general are up, gaining 3.9% just last month, London has outpaced the pack. According to a report by Savills Plc, the growth in price of residential land in London has risen 25.8% for the year to March 2014, with prime London residential price growth of 13.1% over the same period.
What’s startling is the fact that “Prices are now 27% above their 2007 peak (prime London residential prices are 36.2% above),” said Savills. “This is the result of acute supply demand imbalance—strong demand for a limited pool of suitable opportunities from a wide range of domestic and foreign players.” Such pricing means that London’s existing housing shortage, particularly in affordable housing, is growing worse.
The IMF, having warned Dubai, has also cautioned Britain about the danger of a bubble, lest risky mortgages turn the boom into a bust.
John Blank, chief equity strategist at Zacks, said, “Money has quadrupled flowing into London since the Russian sanctions.” As a result, London has benefited. Why? “New York has always been the financial center, but London has a different atmosphere and location—and all further east.”
Blank cited another other factor. “Monarchy is somewhat more palatable to the Middle East and Russia. London has become home, to some degree, of elements of the global economy that are not as comfortable in the U.S.” He ticked off the advantages London offers to foreign HNW investors drawn to the city: Good rule of law, protection of property rights, access to the FTSE, a solid financial infrastructure, metal and currency markets and “centuries of doing it ... London has a long reach around the world.”