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The largest proportion of global wealth is held in the residential property market, and it’s been outperforming almost every other asset class.

Any budding investor weighing up their options may consider putting their money into bonds, funds, stocks, gold or even cryptocurrency, among other things, but it is the real estate market that not only has the highest level of investment globally, but has soared in value in the past three years.

The latest research published by Savills shows that the world’s property market was worth a huge £379.7trn as of the end of 2022, with more than three quarters of this to be found in residential property specifically. The sector alone was worth £287.6trn globally by the end of last year.

Further to this, the residential property sector saw a huge 21.1% leap in its value in the three-year period between 2019 and 2022, faring well through various factors that created market turbulence elsewhere, such as the Covid pandemic.

The only asset class to perform more strongly during the three-year time period was gold, which saw its value grow by 26.9%. However, as Savills points out: “The total value of gold is still dwarfed by the value of the real estate markets worldwide.”

Outperforming bonds and equities

Residential property across the globe “significantly” outperformed both bonds and equities over the last three years. Over the past year, the global value of equities has fallen by 20.3%, followed by agricultural land by 11.4% and debt securities by 3.2%.

Across the whole of the real estate sector – including both commercial and residential property – there has been an 18.7% hike in value over the past three years. Commercial real estate was slower to climb, though, with a 14.4% rise in value.

The most valuable real estate market, says Savills, remains China, as it makes up more than a quarter (26%) of the world’s total real estate value. Of course, it is also one of the most highly populated countries in the world, with 1.4 billion people and a vast amount of land space.

The US was the country with the second highest value real estate market, accounting for 19% of the total; but again, it is a large and highly populated country. After this, Japan came in third position, followed by Germany and then the UK.

Savills explains the balance: “Significant real estate wealth is concentrated in Europe and North America. The value of property in these two regions accounts for almost half (47%) of the total value worldwide, despite them being home to just 17% of the global population.

“Asia-Pacific (excluding China), by contrast, has 37% of the world’s population but accounts for only 17% of global real estate value.”

UK residential property hit £8.68trn in 2022

As of the end of 2022, Savills estimates that the total value of UK residential property was a record-high £8.68trn, having grown by 5.1% since the previous year. This comes off the back of accelerated house price growth over the past three years.

Lucian Cook, head of research at Savills, said: “The total value of all housing has risen by almost a quarter (+23%) since 2019, while outstanding mortgage debt went up by a lower +11%. So, while outstanding borrowing increased by £168bn, the growth in the total equity pot was well over nine times that figure at £1.46trn.”

The residential property market in the UK remains an extremely popular asset class among investors. It has continued to perform strongly throughout the past few years, in spite of some major shifts within the economy, and appetite remains strong despite rising mortgage rates.

Estate agency Hamptons recently released a forecast indicating that the market will return to growth from 2025, in what it deems to be the start of a new “property market cycle”, so the total value of UK residential property looks set to continue to climb.

Source : BuyAssociation

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(Melbourne) – Hines, a global real estate investment, development, and property manager, today announced the acquisition of two logistics warehouses from Dexus Industria REIT, a listed Australian real estate investment trust. Hines has also simultaneously entered into a 15-year lease agreement for part of the property with PWR Performance Products Pty Ltd (“PWR”), a Gold Coast-based provider of high-tech cooling solutions, to commence in July 2025.

Located at 16-28 Quarry Road in Stapylton, Queensland, the 40,983 square meter asset comprises of two modern, highly functional logistics buildings and is currently 100 per cent leased to three major tenants. The clear span warehouses offer quick access to the M1 motorway, providing great connectivity between Brisbane, Gold Coast, and regional Queensland. This location appeals to a broad cross-section of high-caliber tenants such as PWR.

“We are thrilled about securing this site for our headquarters and working with Hines to build a facility that will accelerate our growth into the aerospace and renewable energy sectors right here on the Gold Coast,” said Kees Weel, Managing Director of PWR. “The building will give us room to streamline the factory layout and expand our capabilities to meet customer demands.”

PWR plans to invest AU$21.9 million in facility upgrades and new equipment over three years to increase its production capacity by 114 per cent and add up to 488 new jobs over the next 10 years. PWR has also been successful in receiving a government grant from the ‘Invested in Queensland’ program to support its expansion.

“The strategic location, the strong tenant base, and the potential for growth make these warehouses an attractive investment,” said David Warneford, country head of Australia and New Zealand at Hines. “We are pleased to partner with PWR to deliver their new Queensland base, as we continue to bring strategic benefits to our portfolio, partners, and tenants in Australia.”

Since 2020, Hines has secured 14 industrial assets in Asia Pacific totaling around 550,000 square metres (six million square feet) across five markets in Australia, China, Japan, South Korea, and Singapore. The deal marks Hines’ eighth industrial and logistics acquisition in Australia and aims to illustrate the firm’s commitment to creating value for both tenants and investors.

In line with Hines’ commitment to sustainability and meeting the ESG needs of today’s tenants, Hines plans to add solar power generation and upgrade various building systems to elevate the asset’s ESG standards.

About Hines

Hines is a global real estate investment, development and property manager. The firm was founded by Gerald D. Hines in 1957 and now operates in 30 countries. We manage nearly $94.6B¹ in high-performing assets across residential, logistics, retail, office, and mixed-use strategies. Our local teams serve 790 properties totaling over 269 million square feet globally. We are committed to a net zero carbon target by 2040 without buying offsets. To learn more about Hines, visit www.hines.com and follow @Hines on social media.

¹Includes both the global Hines organization as well as RIA AUM as of June 30, 2023.

Source : Hines

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As a non-resident, you are required to pay tax on the sale of the ancestral property in Mumbai, similar to a resident. Since the property has been held for more than 24 months, any profits from the sale will be considered long-term capital gains.

For the calculation of capital gains, the cost of acquisition is critical. In the case of inherited property, the cost is considered as the price paid by the previous owner. Since the property was acquired before 1 April 2001, the cost of acquisition for capital gain purposes is the fair market value of the property as of 1 April 2001.

To determine the fair market value, you can use the applicable rates or values such as the circle rate or stamp duty rate of the property on that date. If these values are unavailable, obtaining a valuation report from a registered valuer is necessary. It is important to note that the valuation report’s value should not exceed the prescribed rates or values.

The cost is then increased by applying the cost inflation index of the year of sale. The difference between the sale price and the indexed cost constitutes the long-term capital gains, taxed at a flat rate of 20%. To mitigate this tax, you have the option to invest the indexed long-term capital gains in a residential property or specified capital gains bonds within the specified period. As a non-resident, the buyer is obligated to deduct tax at 20% on the computed long-term capital gains if you provide documentary evidence of the cost. Failure to provide proof will result in the buyer deducting tax at 20% on the entire sale consideration.

If you do not have any other income taxable in India, you will be required to pay tax at 20% on the capital gains, as non-residents cannot offset the shortfall in the basic exemption limit against long-term capital gains.

Source : Mint

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The shock that rippled through global housing markets as central banks rapidly raised interest rates last year has given way to a cold new reality: The real estate bonanza that fueled wealth for millions of people is over.

Markets around the world are caught between sharply higher borrowing costs — likely here to stay — and a shortage of homes that’s keeping prices elevated. That’s made housing in many areas even less affordable, while property owners with resetting loans face increasing financial strain.

The US market, dominated by 30-year mortgages, is effectively frozen as homeowners with low rates are reluctant to sell and buyers are squeezed. In the longtime boom areas of New Zealand and Canada, values haven’t fallen meaningfully for house hunters, and people who paid peak prices are now struggling with higher loan payments. From the UK to South Korea, distress is mounting for landlords. And in many places, higher interest rates are only making it harder to build.

The scenarios may be playing out differently in each country, but they all add up to a potential drag on global economies as people shell out more of their income for housing, whether they rent or own. And with buyers increasingly locked out, the viability of homeownership as a path to middle-class security — a bedrock of personal finance for generations around the world — is suddenly looking a lot more difficult. The winners are longtime owners who’ve captured equity from soaring values or don’t have a mortgage, freeing them to put cash in higher-yielding investments.

“The golden age of single-family housing is behind us,” said Mark Zandi, chief economist at Moody’s Analytics. “If you bought in the wake of the financial crisis, you built up a lot of equity in most parts of the world, but the next 10 years is going to be more of a slog.”

Zandi expects that US 30-year mortgage rates, currently about 7.4%, will average somewhere around 5.5% over the next decade, compared with a low of 2.65% in early 2021. Most other developed countries will see a similar increase, he says, even if particular levels vary.

A lot remains unknown. A deepening war in the Middle East and the ongoing economic troubles of China — contending with its own series of property crises centered on its highly indebted developers — could contribute to a broader global downturn that would reduce housing demand and push down prices substantially, causing far worse financial turmoil. And in terms of real estate, commercial property has become more worrisome for the economy.

But even as inflation cools and many countries’ rate-hiking campaigns are easing, consumers are starting to come around to the idea that borrowing costs may never be as low as they were in the 15 years since the financial crisis. It was one thing when rates suddenly shot up and people facing higher payments thought they could muddle through, or take on mortgages with the expectation of refinancing later. It’s another when the higher costs drag on for years.

‘Glacial Period’

In the US, the collision of low inventory, rising prices and the highest mortgage rates in a generation has sent sales of previously owned homes to the lowest level since 2010, according to the National Association of Realtors. The market is now the least affordable in four decades, with about 40% of the median household income required to purchase a typical home, data from Intercontinental Exchange Inc. show.

The most severe effects may still be to come: In a report last month, Goldman Sachs Group Inc. economists said that the impact of sustained higher mortgage rates will be the most pronounced in 2024. They estimated that transactions will fall to the lowest level since the early 1990s.

“In some ways we’re in the early stages of this glacial period, and it’s unlikely to thaw anytime soon,” said Benjamin Keys, a professor at University of Pennsylvania’s Wharton School. “This weirdness can last for a long time.”

That stands to have knock-on effects. Mobility for jobs could be limited, family members and friends may more often be forced to live together, and, as the elderly age in place, homes may be kept off the market that could otherwise be purchased by younger families. At the same time, homeowners are sitting on near-record equity and the vast majority are unaffected by rate hikes, which might otherwise force sales or result in foreclosures that would give buyers a chance to enter the market.

“Things might get a little more affordable, but certainly not to what people would have hoped for,” Niraj Shah, an economist with Bloomberg Economics, said of global housing markets. “It’s going to be a struggle on both ends.”

He predicts a “slow puncture” in prices for developed economies rather than a crash, saying that an economic slowdown is unlikely to result in heavy job losses that would cause severe housing distress. But homeowners pinched by higher rates may have to cut back on spending in other areas to keep up with their mortgage payments, Shah said.

“You have distressed people, but not distressed sales,” he said.

Watching Pennies

One of the most extreme cases is playing out in New Zealand, the South Pacific nation that was home to one of the world’s biggest pandemic booms, with property prices rising almost 30% in 2021 alone. About 25% of the current stock of mortgage lending was taken out that year, and a fifth of those were first-time buyers, according to the Reserve Bank of New Zealand.

Mortgage rates in the country are typically fixed for less than three years — meaning the central bank’s 525 basis points of rate hikes since October 2021 are sending house payments soaring. The RBNZ says around half of the outstanding stock of mortgages have been refinanced this year. It estimates the share of borrowers’ disposable income dedicated to interest costs will rise from a low of 9% in 2021 to around 20% by the middle of 2024.

That’s squeezing the budgets of people such as Aaron Rubin, who took out a NZ$1 million ($603,000) mortgage in 2021 to finance the purchase of a NZ$1.2 million four-bedroom house. After moving to New Zealand from the US eight years ago, he and his wife, Jessica, thought buying a home in the coastal city of Nelson was a decision that would provide stability for their two young children.

At first, the couple paid around NZ$4,000 a month on their mortgage. After a refinancing, it’s now up to about NZ$6,400.

“We can no longer afford to visit our family in the US and we are literally watching every penny that flows in and out of the account,” said Rubin, a 46-year-old software engineer. “It’s time consuming and stressful, and it’s changed our lifestyle.”

He considers himself lucky — his financial situation isn’t dire, and the couple can afford to continue paying their mortgage. He sees many Kiwis under far greater pressure.

The saving grace for many households has been strong wage and employment growth that has kept distress to a minimum, said Sharon Zollner, chief New Zealand economist at ANZ in Auckland.

“Once you deflate it by household income growth, debt is actually considerably lower than it was in 2007,” she said. “But of course, the average hides a million stories, and there are certainly some stressed people out there.”

Investor Pullback

The global housing boom of the last decade made real estate a fast path to wealth in countries such as New Zealand, Australia and, especially, Canada, where tens of thousands of people turned into amateur investors. By 2020, people with multiple homes had come to account for almost a third of the housing stock in two of Canada’s three most populous provinces, Ontario and British Columbia.

But higher interest rates and bond yields mean the math has suddenly flipped. Owning a condo in Canada’s biggest city, Toronto, will now yield only 3.9% after mortgage costs and other expenses, less than the 5% earned by investing in a Government of Canada treasury bill, according to a Bank of Montreal study.

“I don’t see how you can replicate the last 20 years going forward,” said Robert Kavcic, the Bank of Montreal economist who authored the report. “You’re going to have a whole generation of investors learn a pretty hard lesson.”

Higher borrowing costs have already pushed some investment properties deep into negative cash flow, forcing their owners to sell while also damping interest in new purchases. That could spell trouble for regular people just looking for a place to live too.

Investors buying units pre-construction has become a key source of financing for developers in the last decade, and their pullback has already seen the delay or cancellation of thousands of planned units in cities like Toronto. Canada’s already under-supplied market is one reason home prices have proved surprisingly resilient to higher interest rates, and the expected slowdown in building could only exacerbate the shortage.

A similar situation is playing out in Europe, where higher rates and soaring construction costs threaten to intensify supply strains. In Germany, new building permits fell more than 27% in the first half of the year, and in France they dropped 28% through July. Sweden, suffering its worst slump since a crisis in the 1990s, has building rates running at less than a third what’s deemed necessary to keep up with demand, threatening to further test the limits of affordability.

And that’s not even getting into the compounding strain from skyrocketing consumer prices generally. In the UK, which is facing the highest cost-of-living increase in a generation, nearly two million people have resorted to using buy-now-pay-later credit to cover groceries, bills and other essentials, according to a survey this year by the Money and Pensions Service. With more than one million homeowners estimated to be refinancing their mortgages this year at much higher levels, that pressure will only get worse.

A report released in September by KPMG showed almost a quarter of UK mortgage holders are considering selling and moving to a cheaper property due to the surge in financing costs, and mortgages with late payments now account for over 1% of the value of outstanding home loans. For landlords, who often have floating-rate mortgages, it can be worse, and that translates directly into pressure on renters.

London landlord Karen Gregory had little choice but to sell her building after her mortgage payment jumped more than threefold, leaving her with the prospect of evicting a young couple with a baby on the way. They found a new home before her deal, but the situation left her fed up.

“Landlords have had enough of the increase in interest rates,” Gregory said.

Asia Shakeout

In Asia, South Korea is contending with its own landlord fallout. The country has the developed world’s highest ratio of household debt-to-gross domestic product, at 157%, if the roughly $800 billion is counted from “jeonse” — a rental system unique to the country.

Under the system, landlords collect a deposit called jeonse that’s equal to roughly half of a property’s value at the start of the lease period, which typically runs for two to four years. When interest rates go up, jeonse becomes less attractive than paying monthly rent and the size of the deposits landlords can get from renters falls. Because owners often use new deposits to pay back old ones when leases expire, it becomes harder for them to meet their obligations.

The risk of defaults from jeonse landlords is expected to persist through 2024, because the contracts coming due were signed when prices — and hence deposits — were at record highs.

Hong Kong, meanwhile, has been hit by China’s slowdown, a population exodus and rising rates that have halted once-unstoppable price gains. Since its currency is pegged to the greenback, the city’s monetary policy generally moves in tandem with the US. That’s caused mortgage rates to more than double since the beginning of 2022. Existing-home prices in the notoriously expensive area have fallen to a six-year low, builders are offering deep discounts and the government is slashing extra stamp duties for some buyers to revive the hub.

Unless interest rates start falling, the Hong Kong housing market will continue to suffer. Prices in the city had surged so much in the past decade that homes are still unaffordable to many, meaning the recent drop in values doesn’t offset the higher borrowing costs — the same scenario that’s playing out in much of the world.

Housing markets “have had a real party the last two decades, and this is simply because you’ve had record low interest rates and lack of supply fueling house prices,” said Shah of Bloomberg Economics. “The decade ahead has to be the decade of great moderation.”

Source : Bloomberg

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PRIVATE real estate fundraising plunged in the third quarter as higher interest rates cooled investor appetites for risk.

Around the world, US$18.2 billion was raised by 61 funds in the three months till September, a 71 per cent decline from the second quarter, when 117 funds raised US$63.4 billion, according to a report by Preqin. It was the slowest rate of fund closures in the present cycle of interest-rate increases, the research firm said.

Property markets around the world are in turmoil as interest-rate hikes by central banks have increased the cost of borrowing. At the same time, valuations have dropped for some property types, decreasing the returns investors can expect – especially for offices, which have been battered by the rise of remote work.

“Investment opportunities that can offer a stable positive net income stream and a clear investment exit route are very scarce,” said Henry Lam, associate vice-president of research insights at Preqin. “Market players tend to take a wait-and-see approach until the future pathway of interest rates is more certain.”

North America-focused funds accounted for the largest share of global fundraising in the third quarter, yet their proportion declined to 70 per cent from 81 per cent in the previous three months, according to the report. The Asia-Pacific region’s share increased to 24 per cent. Japan, where borrowing costs remained low, was particularly attractive to investors, Preqin said.

Funds focused on Europe and the rest of the world raised just 6 per cent of the total capital in the third quarter.

The US dollar value of global property transactions slipped to US$26.9 billion in the third quarter from US$31.9 billion in the three months till June, Preqin said. Office sales declined 20 per cent. Industrial and residential buildings traded most actively, with deals falling only 3.2 per cent and 6.3 per cent, respectively.

Uncertainty over interest rates will continue to weigh on real estate fundraising and transactions, according to Preqin, though investors will seek out property types or markets that promise more certain returns.

“In the short term, say the coming one or two quarters, investment sentiment for real estate will remain subdued,” Lam said. “And global fundraising and deal-making are likely to remain quiet.”

Source : TheBusinessTimes

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Foreign investor volume saw 100% increase in Q1 2023 on a year-on-year basis.

– Koji Nato

LL’S RESEARCH DIRECTOR OF CAPITAL MARKETS IN JAPAN

Hotels or offices?

Who are investing?

A view of the historic Shinchaya Inn on the Nakasendo Way on November 7, 2022 in the post towns of Magome, Japan.

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China continues to suffer under the weight of a collapsing real estate market, raising the alarm for a potential domino effect across the wider economy.

The Chinese construction sector is set to suffer further setbacks in the coming months as embattled developers struggle to stay afloat amid receding demand for new properties and a decline in real estate investments. Analysts are warning that a potential collapse could have repercussions on the wider financial sector.

China’s real estate market is the largest in the world by total value. According to a study by research company Savills, China’s properties are worth $42.7tn or 21% of the global total. However, the sector is poised to suffer over the next few years due to shrinking demand.

Edward Chan, director at S&P Global Ratings, says that he expects nationwide property sales to drop significantly compared to their 2021 level of Rmb18tn ($2.5tn). “We think that in 2023, property sales will drop from Rmb13tn to Rmb12tn. But the chance of property sales dropping further is increasing,” he says.

In August, Evergrande Group, China’s biggest property developer — and the world’s most indebted — filed for bankruptcy under Chapter 15 of the US bankruptcy code. The move, which follows the company’s default on its debt in 2021, worth more than $300bn, shook the region’s real estate construction and supply chain.

Although Evergrande has been working on offshore agreements with creditors as part of its debt restructuring process, the company posted losses of $81bn during 2022 and 2021, raising eyebrows as to the effectiveness of its business strategy.

In a filing posted on August 18, Evergrande reassured its creditors that it plans to go ahead with its restructuring plan. “The application is a normal procedure for the offshore debt restructuring and does not involve bankruptcy petition,” the statement reads.

Evergrande is a Global 500 company that employs more than 200,000 people and is headquartered in the southern port city of Guangzhou, one of the four first-tier cities in the country alongside Beijing, Shanghai and Shenzhen. In 2020, the company’s total asset value reached an estimated $342bn.

In July, China lowered several of its key interest rates and scrapped its benchmark lending rate in an attempt to salvage struggling businesses and boost the demand for credit.

The government lowered one-year loan prime rates to 3.45%, a 10-basis-point decrease from its original 3.55% rate. However, the recent devaluation of the yuan, which has dropped 6% against the dollar so far in 2023, means that the Chinese central bank has less leeway to lower its interest rates and boost credit availability.

Vivian Xue, director of Asia-Pacific financial institutions at Fitch Ratings, says the loan-prime-rate reduction will help lower the borrowing costs, but a “material and sustained recovery in retail loan demand is less likely until home buyer confidence improves meaningfully”.

Leading the way down the rabbit hole?

Following in Evergrande’s trembling footsteps, a slew of other Chinese developers have defaulted on their sales. One of the latest is Country Garden (Cogard), the nation’s largest real estate developer by assets, which this week made payments on two dollar-denominated bonds after missing its deadline in early August.

Cogard’s payment of its $22.5m-worth of interest on those bonds, with an outstanding value of $1bn, means that it has narrowly avoided a default. However, the company’s 11th-hour payment hasn’t reassured traders that China’s embattled real estate market will see revived interest from buyers and a boost in liquidity any time soon.

“As Cogard went into distress, we are assessing how that would impact the property sector,” says Mr Chan. “Not just for the developers, but also [regarding] the consequences of prolonged deterioration of the property sector for suppliers and other companies alongside the value chain.”

A recent report from S&P Global Ratings points out the vulnerable position that small construction contractors and suppliers find themselves in, due to their reliance on customers like Cogard. Following recent developments, these companies have set new rules aimed at protecting themselves when entering commercial bills, which include requesting advance cash payments.

Nonetheless, failing developers have had an impact on multiple segments of the real estate market. Construction, real estate and interior design companies are often denied payments for their work. A bursting property bubble and a slowing economy have left Chinese businesses of different sizes awaiting paycheques, which are now long overdue.

Alicia García-Herrero, chief economist for Asia-Pacific at Natixis, says Cogard’s last-minute payments on its coupons shows that lifting regulatory constraints introduced to limit the leverage by real estate developers is “not enough to change the trend and make people want to buy property while prices keep experiencing a negative growth”. The question remains on how to revive the sector amid an abundance of external factors, including a declining Chinese population and a slowing national economy.

Link to shadow banking

“The Chinese real estate sector could not have grown so exponentially without shadow banking,” says Ms García-Herrero. Back in 2009 and 2010, China propelled its growth through a fiscal stimulus that focused on infrastructure and real estate. The framework put constraints on banks’ ability to lend to developers, which instead relied on other entities, including government vehicles, trusts and insurance companies.

“Due to the early restrictions on real estate loans from banks, the sector is not as exposed to developers’ own balance sheets because the share of their loans to such firms is quite minimal,” says Ms García-Herrero. “On the other hand, the off-balance sheet exposure of other financial institutions is much bigger,” she says.

In August, Zhongzhi Enterprise Group, a major player in the Chinese asset management sphere, announced that it would enter into a debt restructuring plan to redress its missing repayments. The group’s trust, like many others in the country, works outside of the framework that governs commercial banks and funds its operations through wealth management products, among other tools, which are commonly used by the Chinese shadow banking sector.

The trust’s extensive real estate exposure, which accounts for more than $80bn worth of assets under management, has raised red flags not only on the impact of the crisis on the real estate sector, but also on the broader banking and financial sphere.

“While the risk is likely greater for smaller lenders with a higher concentration in Tier 3 and lower cities, if the property stress worsens and spills over to other sectors, it will intensify revenue and margin pressure at Chinese banks,” says Elaine Xu, who is also a director of Asia-Pacific financial institutions at Fitch Ratings.

Nevertheless, analysts believe that continued policy support to promote housing completions and the increased relaxation of home purchasing restrictions will help mitigate asset quality risks for banks. “Banks remain selective with granting new developer loans, and their direct exposure to developers has already declined to around 5%,” says Ms Xu.

Source : TheBanker

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