Real Estate Investor Magazine South Africa November 2014 | Page 58

GLOBAL

Global
Property Intel
Rich insights into real estate
performance and risks

R

ising capital flows and strong performance
across most markets have again made real estate
a favoured asset class, according to the new,
recently released the Investment Property Databank
(IPD) Global Intelligence, which holds a vast pool of
real estate performance data across the globe, enabling
investors and managers to gain an authoritative view
of market trends with the aim of progressing the
globalisation of the real estate asset and supporting the
drive to institutionalise real estate as an asset class.
Strong performance
Global returns averaged 8.4% over the past four
years, with pricing back to levels last seen in 2007/8
in many markets. The strong performance of recent
years has continued into 2014. In three markets (UK,
US, Ireland) for which a quarterly series is available,
annualised returns at Q2 2014 ran at double digit
levels. Together, these markets provide a useful, if more
volatile, indicator of the likely trajectory of the IPD
Global Property Index through the year.
Lagging markets
Although many markets continue their strong run,
others continue to lag, certainly to the end of 2013.
Thirteen of the countries in the IPD Global Property
Index, all in Europe, experienced some capital
declines over the year, with the worst affected being
Spain, Netherlands, and Portugal. The Asian markets
performed far more strongly than Europe, although
the formerly strong markets of China and Hong Kong
experienced a slowing to 8.0% and 7.3% respectively,
putting them more in line with the overall IPD Global
Property Index. Though resilient during the financial
crisis, these markets were dragged back by run-ups
in pricing over recent years, low income yields, and
concerns over excess supply.

58

November 2014 SA Real Estate Investor

BY SCOTT PICKEN

Aggressive pricing
Increasingly aggressive pricing of markets poses a
notable risk for real estate investors, particularly in the
context of rising bond yields. The IPD Pricing Indicator
across all markets in the IPD Global Property Index
shows that real estate is more aggressively priced than
at any time over the past five years, but not as severe as
the peak years of 2007/8.
This indicator represents the average across all
markets and conceals more aggressive pricing for
some markets, particularly Canada, UK and the US.
A further risk relates to the potential for markets to
continue their recent strong runs. Canada, the US, and
South Africa have posted returns near or above their
long-run averages for each of the past four years. Other
countries such as Hong Kong have seen momentum
ease during this period. Still others, such as Ireland and
perhaps Japan and Spain, hold better cyclical positions.
Asset management insights
Peter Hobbs, Managing Director and Head of Real
Estate Research at MSCI commented: “Although
the dataset provides powerful information on real
estate performance and risk, it also contains important
insights into the asset management process. Asset
managers face greater pressure to contain costs
while still delivering outperformance in a low yield
environment. IPD Global Intel data imply wide
differences in improvement expenditures across
markets. At a global level, improvement expenditures
as a share of capital value averaged 1.15% over the
past decade. Improvement ratios exceeded 2% in
Sweden over the past five years, and approached the
2% threshold in the US, Canada, the Netherlands, and
South Africa over the same period.”

RESOURCES
Investment Property Databank (IPD)
www.reimag.co.za