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Global Real Estate Market

Mike King

The global real estate industry continues to be affected by the global economic downturn, which began in 2008 and has doggedly remained into 2012 with bleak short term forecasts. High unemployment in major economies, combined with deficit and debt crises have increased economic concerns and prolonged the economic malaise.

Real estate refers to a property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; (also) an item of real property; (more generally) buildings or housing in general. Also: the business of real estate; the profession of buying, selling, or renting land, buildings or housing.
With the development of private property ownership, real estate has become a major area of business, commonly referred to as commercial real estate. Purchasing real estate requires a significant investment, and each parcel of land has unique characteristics, so the real estate industry has evolved into several distinct fields.

Over the past year, it has become increasingly clear that the economies of Europe, US and Asia are moving at different rates and with quite different features and issues. Europe is clearly still impacted by a debt liquidity crisis and the sovereign debt crisis whereas the US, while still grappling with its debt issues, saw robust REIT and equity fund raising in 2011 and has seen the emergence of a shadow banking market to support the real estate industry. In Asia, it appears to be business as usual with the ongoing changes in public policy towards the real estate markets highlighting the need for local knowledge to operate successfully in the region.

Real estate market conditions remain weak in much of Europe, not surprisingly given ongoing recessionary conditions, high unemployment and tight credit. Spain and Ireland continued to post large year-on-year real price declines through the final months of 2012, though in the case of the latter the pace of deterioration finally appears to be moderating. French property prices also were posting modest declines through year-end.

Yet several other European markets, including the UK and Sweden, showed signs of stabilisation in late 2012. Switzerland continues to report strong, steady house price appreciation, supported by rock bottom mortgage rates, adding to concerns of overheating. German property markets continue to firm. After over a decade of steady declines, German home prices rose for a third year in a row in 2012.

North American housing trends are diverging, with the ongoing US recovery contrasting sharply with the softening market in Canada. The United States has moved to the top of the pack for price growth, as strengthening sales bump up against a shortage of listings. In Canada, tougher mortgage rules and a lack of pent-up demand have undercut sales, pulling average inflation-adjusted prices slightly below year-ago levels in the final quarter of 2012.

The global property investment market recorded a modest 6% rise in activity during 2012 with volumes reaching US$929bn. China remained the largest global investment market overall due to surge in land sales seen in late 2012 followed by US and UK respectively. In what was a difficult year in most markets, investment volumes rallied in Q4 signalling the beginning of real momentum and a return of confidence in the market which could see volumes this year increase 14% to exceed $1 trillion for the first time since 2007.

Property Investment Market 2012
Rank Country Investment Volume (US$ Billion)
1 China 304.1
2 USA 267.1
3 UK 56.3
4 Germany 45.6
5 Japan 34.7
6 Hong Kong 27.6
7 Australia 24.6
8 Canada 23.2
9 France 20.6
10 Singapore 16.7


Expectations of a gradual pickup in global growth combined with highly accommodative monetary policy should support a further modest improvement in global real estate markets in 2013. The US housing market in particular appears to have considerable upside potential, buoyed by pent-up demand, near-record affordability and strengthening labour markets. In contrast, in many advanced nations, notably in Europe, the recovery will remain restrained by high unemployment, ongoing fiscal austerity and household deleveraging.

In the face of economic uncertainty, investors continue to seek security, and real estate has a role to play by providing access to secure income and a physical asset. Securing income flows requires asset and property management skills to improve contractual terms, occupancy levels and generally work the assets. For the industry to deliver risk-adjusted returns to investors, combining the skills of strong local operators with those with capital and aligning their naturally differing objectives will need to be a feature of 2013.

For more information on the global real estate market, see the latest research: Global Real Estate Market

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