Global real estate trends
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.