Global real es­tate trends

Finweek English Edition - - COVER - BY GLENDA WIL­LIAMS

Af­ter f ive strong years of growth glob­ally, di­rect prop­erty de­liv­ered stel­lar re­sults in 2014 al­beit with marked vari­a­tions across coun­tries.

Show­ing vig­or­ous re­cov­ery af­ter the global fi­nan­cial cri­sis, Ire­land de­liv­ered re­turns of 40%, re­ports re­search and an­a­lyt­ics com­pany MSCI. The UK and US had re­turns of 17.9% and 11.5% re­spec­tively, while South Africa also pro­duced a re­turn higher than the global in­dex av­er­age of 9.9%.

Core real es­tate at­tracts loads of cap­i­tal, ex­plains Jill Comp­ton, vi­cepres­i­dent of MSCI, and af­ter the cri­sis the f light was to the safety of core mar­kets like Lon­don. While volatil­ity re­mains a chal­lenge for as­set al­lo­ca­tors, value-add and op­por­tunis­tic mar­kets are be­gin­ning to fea­ture more. For in­vestors, there is risk re­duc­tion through coun­try diver­si­fi­ca­tion with strate­gic al­lo­ca­tion, look­ing at mar­ket size and ma­tu­rity, risk and re­turn. Hence the im­por­tance

Vice-pres­i­dent of MSCI of in­dexes to iden­tify which mar­kets are grow­ing or peak­ing, which are slip­ping (like some Asian mar­kets) a nd which, l i ke many Euro­pean mar­kets, ex­cept Spain, are slug­gish (see graph).

Driv­ing real es­tate per­for­mance are glob­al­i­sa­tion and ur­ban­i­sa­tion. By 2030, two thirds of the world’s pop­u­la­tion will re­side in cities and the im­pact on real es­tate will in­evitably re­sult in fierce de­mand for com­mer­cial and re­tail space. There will also be added pres­sure on an al­ready un­der­sup­plied residential mar­ket, es­pe­cially in key cities. Mexico, SA and Tur­key will also re­quire ad­di­tional com­mer­cial space as they at­tract new busi­ness, says Comp­ton.

The larger the in­vestor, the more the choice, so many in­vestors en­ter joint ven­tures. This is par­tic­u­larly true i n Asi a , w i t h its con­tri­bu­tion to global out­put ex­pected to be larger than Europe and North Amer­ica com­bined by 2030. That shift of eco­nomic power from the West is see­ing a num­ber of

CEO of Re­de­fine Prop­er­ties large in­vestors push­ing to in­crease ex­po­sure in China and Brazil. Residential, says Comp­ton, is one of those pushes. Un­sur­pris­ingly, the hot topic in the UK is also residential. While many Euro­pean mar­kets may be unattrac­tive for in­vest­ment, much in­ter­na­tional cap­i­tal is go­ing into Ger­many, she says.

This, and t he i mpor­tance of part­ner­ships, is some­thing Re­de­fine Prop­er­ties knows a fair bit about. The JSE-listed real es­tate in­vest­ment trust (REIT) has a 15% off­shore ex­po­sure − split be­tween Europe and Aus­tralia − part­ner­ing with Re­de­fine In­ter­na­tional into smaller for­mat re­tail stores in Ger­many and co-in­vest­ing with Cromwell in Aus­tralia, where t hey hold a di­rect com­mer­cial prop­erty.

“Listed funds tra­di­tion­ally look at de­vel­oped mar­kets with clear leg­is­la­tion and tax rules,” An­drew Konig, CEO of Re­de­fine Prop­er­ties, tells Fin­week. “But the key to off­shore in­vest­ment is a lo­cal part­ner with a pres­ence in the ge­og­ra­phy to be in­vested into.” There­fore Re­de­fine has not in­vested into the US. “The US is not that tax friendly and that means value leak­age as a re­sult of not be­ing able to pass on the with­hold­ing tax ben­e­fit to our in­vestors in South Africa.” Ac­cord­ing to Konig, it is the preser­va­tion of cap­i­tal that drives in­vest­ment into First World coun­tries.

If we heed Dries du Toit’s ad­vice (see page 19), then 30% to 40% of our to­tal as­sets in our in­vest­ment port­fo­lio − that in­cludes prop­erty − should be diver­si­fied over­seas to de­rive the ben­e­fit of those re­turns.

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