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Categorized | Property

Property investment in first fall since 2009


Posted on October 4, 2016

Hot property: New York has overtaken London as the most popular city destination for investors’ cash©AP

Hot property: New York has overtaken London as the most popular city destination for investors’ cash

Global property investment volumes have fallen for the first time in seven years as investors retreated from mounting international risks.

Roughly $919.7bn was committed to property globally in the year to the end of June, excluding development land — 5.7 per cent below the total a year earlier, according to Cushman & Wakefield, the property adviser.

    The reversal after years of rising investment levels marks a late stage of the property cycle and indicates investors’ worries over factors such as Chinese market instability and the UK’s exit from the EU, said David Hutchings, head of European investment strategy at Cushman.

    “With risk still elevated but demand high, the question is being asked whether this is a temporary pause or has the market peaked?” he said.

    The decline in investment volumes was spread across regions and sectors, Mr Hutchings said.

    The data also showed that New York had supplanted London as the city attracting most cross-border investment, due to waning appetite for property in the UK capital prompted by high prices and the Brexit vote.

    “We’re seeing an increased level of risk aversion compared with a year or two ago. Investors have gone back into their shell a bit,” Mr Hutchings said.

    “The process began last summer [2015] with the devaluation of the yuan, which made people more worried about what’s happening in China, and built up through European issues such as migration and Brexit, followed by the US elections.

    “Investors are very focused on the best-quality property in the best cities, but there is only so much of that sort of property around.”

    The London metropolitan area attracted $24.88bn of overseas property investment in the year to June — just below New York’s $24.89bn, as the Big Apple edged ahead for the first time since 2007, according to Cushman’s analysis, which was based on data from Real Capital Analytics. A year earlier, London had attracted $39.4bn compared with New York’s $15.8bn.

    A separate report from RCA found that while investment activity had softened around the world, “there is limited pressure on real estate investors to divest as there is little stress in the market, the cost of borrowing remains low, loan-to-value ratios are within average levels and fundamentals in many markets are stable and strengthening”.

    Mr Hutchings said that while the real estate cycle had clearly reached a late stage, “it will take longer for the cycle to pass through this time around”.

    A more cautious attitude to new development meant that supply had been kept in check, he said, unlike in previous cycles, when property owners were also more prepared to take on riskier properties.

    Mr Hutchings argued this meant the traditional cycle would be drawn out over a longer period. “That expansion of horizons has been much slower than we normally see . . . and meanwhile it will be some time before interest rates start to rise back towards more normal levels.”