Is An International Property Investment A Smart Idea Right Now?
“Today, property markets appear to becoming increasingly de-correlated so it seems that the rationale for going international is far from dead!”
Pol R. Tansens
Head of Real Estate Investment Strategy
The diversification strategy
Even though real estate diversification has not always come up trumps in recent years, we have always been in favour. For example, capital markets and monetary policies have generated converging gross initial yields on various commercial prime markets over the last few years.
In fact, it has not always been possible for investors to capture superior total returns outside their home country, (certainly after factoring in obstacles and risks, e.g. currency movements attached to going international). Furthermore, many property “commercial and residential” markets have moved in a more synchronised way over the past few years.
However, we believe that the rationale for going international is far from dead. Today, property markets appear to becoming increasingly de-correlated.
While there are no imminent signs that US commercial property markets will reach a turning point soon, there are mounting concerns about how far commercial property prices could go (the sky’s the limit!).
Across Europe, the Brexit saga (and the British fractious government) continues to cast shadows of uncertainty over the UK. Meanwhile, Continental Europe is enjoying an improvement in economic growth, which could spur demand from investors for every category of commercial real estate. Indeed, in most markets we expect to see meaningful real rental growth for 2017/2018. German cities (Munich, Berlin and Hamburg) are in pole position. But growth is expected to be equally strong in Madrid and Milan.
In China, we are starting to see a discrepancy between top-tier housing markets (Beijing, Shanghai etc.) and ‘smaller’ cities. For the first time, lower-tiered markets are expected to outperform prime markets in the coming months.
Finally, the whole correlation/de-correlation issue is a difficult matter to address, for both real estate and other asset classes.
Could it be that real estate correlations (implying a weaker case for diversification across property markets) tend to be stronger during a global financial crisis and weaker at other times?
What type of assets should investors buy today, and where?
Find our answers and recommendations in our upcoming property report “Is real estate portfolio diversification starting to pay off?” to be published at the beginning of October 2017.