With the media in the UK consumed by news of Britain’s imminent (we think) departure from the EU, it is a refreshing revelation that out there, in the big, wide world, other nations are concerned about non-Brexit matters and getting on with life and business as usual.
Law firms with clients looking to invest in real estate abroad will be buoyed by the fact that despite considerable challenges such as corporate credit defaults in the US and uncertainty surrounding the German economy, the global real estate market will continue to be relatively stable. However, investors need to be cautious, several markets, including Australia, and some parts of China and North America are already feeling the impact of price corrections.
Looking at Europe, China, and the Middle East, we see a variety of new trends, including:
Europe
According to PWC’s Emerging Trends in Real Estate Europe 2019, Lisbon is the number one real estate market when considering overall risk and development opportunities.
“Portugal’s economy is growing healthily and its capital is now an international destination for companies, investors and tourists.”
Price is a big factor in Lisbon’s appeal; 600 square foot commonholds in the city centre can be snapped up for less than £130,000 and rental yields range between 5.4-6.7%.
Berlin, Dublin, Madrid, and Frankfurt made up the rest of the top five cities.
The European Central Bank announced the end of the quantitative easing era in December 2018; however, interest rates are not expected to rise until the fourth quarter of 2019.
In traditionally popular countries for second homes: Spain’s property market is set to grow at a steady rate in 2019, with foreign buyers accounting for over 12% of sales compared to only 4% in 2009. And in France, the market has been described as “healthy and very brisk”. Rental yields in the South of France remain high, with annual yields of 6-9%, thanks to owners being able to charge 2-3 times the monthly rent per week over the 10-week summer period.
China
Last year saw China experience its slowest economic growth in nearly 30 years. Rising wages, an ageing population, and a tightening Federal Reserve are contributing to the decline in growth.
The slowdown has impacted the property sector. To counter this, the Chinese government has announced it is scrapping its residency registration system (known as hukou) to encourage migration from the provinces into cities with populations of 3-5 million. It is hoped the scrapping of the 60-year-old hukou system will boost housing demand.
March showed an uptick in residential sales on the back of high demand and low prices.
In contrast, the commercial property market shows no sign of softening and much of the growth is being driven by foreign investment. According to South China Morning Post:
“A report published by CBRE, a leading property adviser, last month showed that commercial real estate investment transaction volumes in China last year reached 251.7 billion yuan (US$37.6 billion), up 4 per cent on the previous year and a record high. While purchases by domestic investors fell 10 per cent year on year, foreign-funded institutions invested more than 78 billion yuan in Chinese commercial property, a 60 per cent increase compared with 2017.”
Warehousing space is fuelling much of the development. E-commerce companies, third-party logistics providers, and manufacturers desperately need quality warehouses. High demand coupled with a scarcity of land in major urban centres and tight land-use restrictions has been a primary driver. This has offset the slowdown in other parts of the commercial property sector, including retail.
The Middle East
Like China, the industrial and logistics sector is where Dubai’s commercial real estate market is experiencing growth. According to Deloitte, a “strong infrastructure pipeline and improving business sentiment on the back of oil price gains and preparations for EXPO 2020 will spur further investment in the warehousing and logistics sector”.
The 2020 Expo is expected to pull the residential property market out of the doldrums – Steve Morgan, CEO of Savills Middle East states there is potential for property prices to decline a further 5-10% before bottoming out.
Although Dubai remains the key destination for international investment in the Middle East, several key projects in Abu Dhabi and Egypt are likely to attract international interest in these countries and keep prices stable. And the lira crisis in Turkey has resulted in foreign buyers from all over the globe snapping up prime property.
Other areas of interest
One of the big stories in the first quarter of this year is the highly predicted bust of the Australian residential property market, with one commentator stating the slump will exceed the global financial crisis and the 1980s recession. Rating agency Moody’s has recently forecast 15% drops in value in parts of Sydney and Melbourne. House prices for all of Sydney are expected to plummet by 9.3% this year. Melbourne homeowners are facing a decline of 11.4%.
African nations are also attracting interest from real estate investors. Nairobi is establishing itself as a tech hub – ‘Silicon Savannah’ – and the recent development of oilfields is spurring investment and growth across Kenya. And Angola, with its rapidly growing middle class and critical supply/demand imbalances in the commercial real estate sector, makes it a prime target for development.
In summary
Although all continents face considerable risks in 2019 and leading into 2020, with a few exceptions, the real estate markets are holding strong. Risk- adverse clients who are nervous about investing in Britain during this period of uncertainty may find more stable returns abroad.
