Everyone has a view on the global property market. Every year, specialists such as Knight Frank and DTZ publish their rankings and predictions. But the fact that these analyses often contradict each other points to a market that’s far from simple. Where experts do agree is that significant social, economic, political, environmental and technological changes filter down into political and economic decision-making. This has an impact on which parts of the world become attractive and investable. Right now, these ‘megatrends’ are mass urbanisation, an ageing population, a rising proportion of middle class and a shift of power from the West to Asia and Africa.
For anyone considering property investment – whether commercial or residential – there are two key factors. Firstly, cities feel the effects of megatrends more dramatically than countries. This suggests that potential investors and developers should be looking in detail at particular cities rather than basing strategies around a country.
The populations of several European countries, including Germany, Greece, Spain and Portugal, are forecast to decline over the coming decades. Most of Europe’s largest cities, however, are predicted to grow. The number of ‘megacities’ (10m+ population) is expected to rise from 28 in 2014 to an estimated 41 by 2030 – 25 of these in Asia.
Research by Savills Investment Management found that property investors are increasingly focusing on cities as more people are drawn to living and working in central areas.
And the second factor for investors to consider? Given that experts can’t agree, the hotspots highlighted by megatrend data must be balanced by information at the microeconomic level. Put simply, local knowledge becomes more valuable when deciding where and when to invest.
This is evident when an investor tries to make sense of news that Spain is both “one of the leading markets in 2016” and is also heading for price stagnation in 2017 and 2018; or that the United Arab Emirates has both a “softening” residential market and “robust activity”.
On the ground the picture becomes clearer. Take the UAE, for example. David Burns MBE, director of UHY Saxena in Dubai, says the region has always been a tale of two cities – Dubai and Abu Dhabi. In both, the price of oil, speculation and regional instability are the main factors affecting the property market.
“People are investing speculatively here for short-term gain. Prices are relatively low now but are expected to rise with the 2020 World Expo. The general yield in the UAE is 7%, compared to a global average of 2-3%. Reasonable quality, real estate regulations in Dubai and the perception that the UAE is a safe haven in the region attract investment.”
David believes that in his region the thinking should be about individual cities. In Saudi Arabia, for example, there are several major cities with very different dynamics – in the holy cities of Mecca and Medina, foreigners are not allowed to buy property; land-locked capital Riyadh is the natural base for many corporates, and Jeddah is viewed as a relatively laid-back city with easy logistics thanks to its seaports.
In Dublin, Ireland, Alan Farrelly, managing director of UHY Farrelly Dawe White, sees both opportunity and challenge.
“This is a city where large employers like Google, Facebook and LinkedIn are creating jobs. This is attracting young graduates, who are now seeking accommodation in the city. It’s creating real demand,” says Alan. “However, there are still issues around planning and council levies in the city that are delaying projects getting started.”
Sunil Hansraj, joint managing partner of UHY’s member firm, Chandabhoy & Jassoobhoy in Mumbai, agrees that it is cities that count. Mumbai is going through a lean phase with supply exceeding demand – something that seems to contradict many of the property market reports that put Mumbai at the top of world rankings.
“In India, each city performs differently at different times, because development regulations and plans differ – each city has its own municipal corporation, which implements rules and regulations. This has a huge impact on the sector. There are several instances where the real estate market of a city has fared better than the country as a whole.”
Reports looking at global trends can’t take account of the motivations and goals of individual investors. A business needing a base as it expands into a new market will be looking for places that have the talent it needs. In this case, affordable housing, social amenities and logistics may be more important than a fast return on investment – though, in fact, a city’s development often leads to a property boom.
Knight Frank states in its Global Cities 2016 report that in emerging world cities megatrends are producing dramatic impacts that lead to an explosion in new consumer markets. “In developed world cities, where real estate risk is more palatable, the emphasis should be on cities which have the ability to attract talent, tourism and international tenants.”
For a business looking for pure investment opportunities, the consideration is more one of prospects for rental income or capital growth over the term that suits the company’s needs.
Mumbai is an example of a complex market where detail and timing are critical. The city may not be attractive to developers right now, but buyers are benefiting from easy access to long-term loans at attractive interest rates.
“Traditionally, the greatest asset for a middle-class Indian family is their own home. The need and requirement for housing will always be there – but the price needs to be right,” says Sunil Hansraj. “Due to the overall slump, developers are offering discounts if the buyer can pay quickly. Investors cannot always get quick return on the investment, however. The wait can be long and if a sale is urgent, they may have to sell at a lower rate. The real estate sector will always be an avenue of opportunity – it’s all about getting the timing right.”
More than simply helping a client take advantage of the business opportunity, Sunil Hansraj says the accountant’s role is to understand the microeconomics and be able to give the investor the assurance that standards are being adhered to and transparency is being maintained.
“The accountant can play an important role in determining the health of the industry, over a long period of time,” says Sunil.
Malta rarely registers in global property market reports, but that doesn’t mean its capital Valletta – the smallest national capital in the EU – isn’t an attractive location for investors. Pierre Galea Musù of UHY Pace, Galea Musù & Co in Malta points out that Malta recorded the highest quarterly increase in house prices in the EU (+6.2%) in the third quarter of last year.
“There is demand, a large percentage of which is definitely from international investors,” he says. “We have a strategic location, possibly the best climate in the world, a favourable health system and our infrastructure is improving – albeit slowly – thanks to EU funds.”
While analysts debate whether falling populations in smaller European cities, for example, or the high productivity of Singapore or Tokyo should be uppermost in decision-making, David
Burns believes that, whatever the city, local knowledge is imperative. “Accountants have an extensive knowledge of the market through their clients. They apply that knowledge to help potential investors use their funds more effectively,” he says. “Preparing feasibility studies and financial forecasts for property investments can provide a holistic overview that is very valuable when it comes to decision-making.”
Pierre Galea Musù agrees. “At local level, the accountant is both advisor and consultant and takes a holistic view on the client’s behalf – helping with discussing re-domiciliation, retirement schemes and tax benefits, to finding trusted realty advisors and ensuring clients get fair deals and good aftersales service.”
Before being able to tap into that local expertise, investors need to have shortlisted the cities of interest to them. Size and predicted growth are not necessarily enough. According to Savills’ research, the hotspots will be the ‘smart cities’ – those that are dealing with the challenges of urbanisation by creating new infrastructure or bringing in favourable regulation. The research cites London’s Crossrail and Grand Paris in Paris as examples of where new transport infrastructure would reduce journey times for people living on the fringes, with a positive effect on property markets. Singapore is also cited as a megacity that combines a high-density population with high liveability thanks to investment in public transport, low impact buildings and a large network of cycle paths and pedestrian walkways.
So, the focus, it seems, needs to be on ‘winning cities’ rather than countries. Investing in just one or two cities across a region could still bring valuable growth, providing buyers do their homework and take advantage of the wealth of local information.
Notes for Editors
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