Globally residential property prices are increasing steadily with the latest worldwide house price index from Knight Frank exceeding its pre-financial crisis high and financial experts are predicting a good year for property investment in the commercial sector in 2014.
The Knight Frank index is worth taking a look at as it tracks residential prices in 53 countries, including the key emerging markets of Dubai and Hong Kong. The index now stands 4% above its previous peak in the second quarter of 2008 and 12.7% above its financial crisis low in the second quarter of 2009.
Over 69% of the countries tracked by the index recorded positive growth in the year to September 2013, yet just two years ago this figure was just 55%.
The index's strong performance has been assisted not just by headline grabbing price rises in Dubai, China and Hong Kong where annual price growth ranged from 16% to nearly 29% but by the performance of a number of other emerging markets such as Taiwan, Indonesia, Turkey and Brazil which recorded price growth of 15.4%, 13.5%, 12.5% and 11.9% respectively in the year to September.
While Dubai's continued recovery is impressive, Ireland is also experiencing a strong rebound. Ireland now ranks fifth in terms of quarterly price growth, with prices rising 4% on average over the three months to the end of September. Less than two years ago average prices were falling at a rate of 5.4% each quarter.
Meanwhile, Global Property Securities Fund Manager, Jim Rehlaender, and head of property, Duncan Owen, say in their latest analysis that whatever happens to economic growth, 2014 should be a good year for global property, with high single digit returns in prospect for selective investors.
The duo say that the big unknown in 2014 is whether an economic recovery globally continues to gain traction, particularly in the US, China and Europe. Either way they believe that property looks well placed. They point out that even if economic growth proves disappointing, the absence of new supply coming onto the market will be good news for property values, given the strength of investor demand. And if the global economy takes off, investors should also benefit from rental growth.
The challenge for property investors in 2014 will be to differentiate between those companies whose valuation fully discounts the outlook and those where there is further value to be unlocked.
They predict that Asia will lead the way in 2014, with total returns of 12% to 15%, including dividend yields of 2% to 3% and that the US will be close behind, with total returns of 8% to 10% overall and even more for large-capitalisation real estate investment trusts, including a dividend yield of perhaps 3%.
Meanwhile, even without any capital growth, Australian yields of 6% will look enticing, even with a low level of economic growth, and a relatively dull Europe could generate 7%, including a yield of about 4%.
They also think that the UK property market is likely to remain strong but, after a good run, investors will need to be selective about which companies they bet on in 2014. France also contains pockets of value. While retail continues to struggle there generally, a number of flagship shopping centres continue to benefit from healthy numbers of shoppers.
Also, the twice yearly Commercial Property Confidence Monitor from Lloyds Bank, which surveys of 500 real estate professionals shows positive sentiment has reached its highest level since the research began in 2010 with Scottish businesses and fund managers leading the way at 90%.
Some 88% of fund managers expect the values of their assets to increase over the next three to six months compared to just 10% at the same point last year with 80% of major businesses agreeing and 63% of major businesses plan to increase their investment commitments over the same period.
Lloyds says that it is the beginning of a regional recovery in the UK commercial property sector with Scotland seeing the biggest turnaround in market confidence among its small and mid sized firms. The 90% anticipating an increase in market activity is in stark contrast to the 9% recorded at the same point in 2012. The South West followed with 86% then the North West at 77% and the Midlands at 75%.
Ray Clancy
Editor Property Wire
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