Global real estate market growth is here to stay!
On its last Global Housing Watch, the IMF continues to be optimistic about this important investment asset class. There are different reasons why this year house prices will continue to rise, faster than last year. Driven by a stabilized economic growth in many developed countries and stabilized commodity prices in many developing countries, the perspective of the largest asset class looks burgeoning. Just like the world’s economic growth, the housing prices have been in a positive long term trend in the past decades.
However, over the past five years we have seen a very important acceleration. We had a 2.3% increase in 2014, accelerating to around 3% in 2015. From a continental point of view, Australasia was one of the best performing markets in 2015 with prices rising around 12%. Asian housing markets, which have been for long time one of the best performing markets, decelerated to around 2% last year, mainly due to the slowdown of China’s demand.
The Property market growth in the Middle East and Latin America has been respectively 6.7% and 4.6%. Meanwhile, North America provided to be able to maintain the demand for residential property at a satisfactory level. Growth there was around 4.6%, which for a developed country is considered remarkable. This price stabilization in North America’s residential market is a strong sign on the long term price recovery, after the tumble of house prices in 2007-2008 crisis.
Europe’s property market seems to be out of a bleak prospective. Lately we have seen a huge drop in the housing market in South Europe, now we begin to see stabilization on prices. The correction in the price of oil has given a higher disposable income for families in this part of the old continent, which has improved the demand for residential investments. In average, the real estate market in Continental Europe increased 3.7%. Also, instead of a growth, we found out there was a price correction in real estate market in Russia and the neighboring countries like Ukraine. The war, a negative perspective for foreign investments, the commodity price slump and the recession have pushed the demand to lower and as a result, we had a 6.2% price fall in these markets only the last year.
From a point of view of capital allocation, you can diversify your investment simply, buying Certificates and ETFs which try to replicate the global real estate market performance. In case you have a bigger capital and you want to take advantage from different specific markets, you should probably analyze the Price-to-Rent Ratio, and the Price-to-Income Ratio. From this point of view you can find huge opportunities in countries like Greece, Italy, Spain, Hungary and Lithuania in Europe; Unites States in North America; Japan and Korea in Asia, and Chile in Latin America.
So far, we have seen a robust demand for real estate around the world. In a year only, investors poured around $ 1Tn on real estate deals, pushed by increasingly difficult possibilities to remunerate the capital in the financial markets, due to record low interest rates and a higher volatility in the stock and bond markets. This also means that rich-cash investors can borrow capital at very low interest rates placing further pressure on the demand side. Investing globally leads to an implicit currency risk, which must always be covered toward derivative contracts or a diversification in a different number of currencies.