High Confidence in Property Investment
Confidence in real estate as an investment vehicle is high this year, particularly from institutional investors. With plenty of ready cash, these funds are busy buying into the best property investment opportunities available around the world.
According to Colin Dyer, CEO at Jones Lang LaSalle, the location of the best opportunities isn't widespread. Interviewed on Reuters, Dyer believes that the Asian and European markets will generally bottom out in the first half of this year. Other property markets such as the US will take longer to recover from the slowdown.
The new positive trend in real estate also depends on the type of investment. Dyer points out that several commercial property markets are already back on the upward climb. Examples of markets returning to previous levels include Hong Kong, major Chinese cities, London and Paris. Dyer says that confidence has returned to these cities whose property markets "have sprung back very quickly". In less liquid markets, he believes that recovery will take longer.
Dyer contrasts the entry and exit of the property market downturn in many parts of the world. While he says the entry "was pretty uniform and pretty worldwide" with price drops of around 40%, the exit is showing "very different patterns according to the general economic background in each country and local investor confidence". In this context, he says that the debacle of property in Dubai "is very much a local story".
Talking about the structure of real estate markets, Dyer says that he has seen a distinct change in the present property cycle. He has noticed that institutional investors have retained their portfolios during this cycle. "In previous cycles, they've bailed out of real estate and lost confidence," he says, "and this hasn't happened this time". According to Dyer, the investment management funds held by Jones Lang LaSalle have maintained their allocations during the recent downward trend.
Dyer also highlights that private equity currently has "lots of funds still to spend". He believes that this ready cash was accumulated at the end of the previous property investment boom. This private equity, along with recapitalised Real Estate Investment Trusts (REITs), is "in a very good position with lots of dry powder to spend". These "well-capitalised organisations" will set the trend over the next 12 to 18 months by buying good opportunities globally.
Although many economies and property markets are showing green shoots, not all are recovering at the same speed. Jones Lang LaSalle's CEO makes the distinction between the V-shaped recoveries - these are found in London, Hong Kong and New York where markets are deep and traditionally very liquid - and U-shaped recoveries in secondary locations. Recoveries here will take longer and the regains in prices will be more gradual.
Obelisk's own market research confirms this trend of recovery in specific markets. We have also noticed that private equity has large and liquid funds for good opportunities in real estate investment. Our recommendations for these funds include Brazil where the property market has not suffered at all from the global downturn. On the contrary, real estate in Brazil is currently on a strong upward trend with prices steadily rising.
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