LaSalle Investment Management (LaSalle) has issued a mid-year update to its Investment Strategy Annual (ISA) report, stating that real estate capital markets have forged ahead and disregarded the distinctions between the fundamentals across low- and high-growth nations.
Considering the uncertainty and volatility in other asset classes — particularly the US Treasuries, European sovereign bonds, Asian stocks and commodity prices — the relative lack of vigilance in the real estate capital markets is the property investment firm’s real concern at 2011’s halfway mark. This was manifested in real estate companies’ intense bidding for core assets in various major markets and in robust capital raising activities.
“The relative lack of caution in the real estate capital markets is a concern. It is remarkable how quickly capital has returned to real estate. The re-emergence of a competitive credit market, so quickly after the bursting of the credit bubble, is also astonishing,” said Jacques Gordon, Global Strategist at LaSalle.
The firm notes the justifiable reasons lenders and investors believe that real estate income streams are once again climbing, even in low-growth countries. Depending on the property type and market, growth in the market has been rapidly moving upwards for one or two years, as evidenced by increased cash flows and real estate rentals. In both instances, the firm believes that the capital market will experience several years of continued growth.
“The global economic recovery remains intact, despite several unexpected shocks in the first half of the year. The biggest risk to real estate performance lies in timing: interest rates could move upward well ahead of any major improvements in fundamentals.”
Of the 30 countries monitored by LaSalle, Japan’s economy has suffered the most. However, the government’s reconstruction efforts are expected to result in a sharp recovery in the next two quarters. Tenants in the logistics and office segments are on the lookout for modern quarters in regions with dependable power supplies and a renewed sense of purpose.
China’s economy continues to show signs of sluggishness. The overheated eastern property markets are at risk of policy changes to reduce or eliminate speculative activity. Meanwhile, secondary coastal markets and central markets continue to look attractive.
In addition, the Australian economy is booming due to its strong commodity exports. The residential markets in Sydney and Melbourne are likewise lucrative, particularly in urban development projects in well-located neighbourhoods. The skyrocketing housing costs have seen only a handful of new construction projects and the presence of several capitalists willing to fund new developments makes the sector interesting.
To contact the journalist, you may send your message to editor@propertyguru.com.sg