Real Estate : Major trends and outlook October 2015

Transcription

1 Real Estate : Major trends and outlook October 2015

2 Major real estate trends and outlook 1) First the good news 2) China versus local property investors elsewhere in the world 3) The housing markets in a nutshell 4) Commercial property in a nutshell 5) Challenges for the listed sector 6) Outlook for various property markets

3 1) The good news: A true asset class Bricks and Mortar Investment vehicles Investor base Objectives Strategies Private Public Small Large Cash Direct REITs Domestic Overseas Capital appreciation Property fund Listed property companies Both Fund of funds Source: BNP Paribas Wealth Management

4 2) China versus local property investors elsewhere in the world China drawn to the centre of global attention What is the impact for the property investor acquiring assets outside China? Chances of deflationary pressure raised? Impact on core inflation difficult to assess Investors from China and other emerging markets are pushing property yields down in Europe and the U.S.

5 2) China versus local property investors elsewhere Ten-year government bond yields (%) Major Countries Actual Annual change Brazil Turkey Indonesia Greece China U.S U.K France Germany Source: TradingEconomics, 22 September 2015

6 3) The housing markets in a nutshell y-on-y (%) q-on-q (%) Rank Country 1Q14 1Q15 1Q15 1 Hong Kong Ireland Estonia (Tallinn) Philippines - Makati CBD Iceland Japan - Tokyo U.S. (FHFA) Israel New Zealand Romania U.S. (Case-Shiller) Norway U.K. (Nationwide) Canada Germany Thailand Mexico Switzerland Netherlands South Korea Source: Global Property Guide, 16 September 2015

7 3) The housing markets in a nutshell Rank Country y-on-y (%) q-on-q (%) 1Q14 1Q15 1Q15 21 Portugal Lithuania - 5 largest cities Slovak Republic Latvia South Africa China - Beijing Vietnam Finland Indonesia Taiwan Puerto Rico Singapore Brazil - São Paulo Spain Greece Ukraine - Kiev Russia UAE - Dubai Source: Global Property Guide, 16 September 2015

8 3) The housing markets in a nutshell Latest trends Low interest rates affordable fixed-rate mortgages Negative impact of mortgage tax relief cuts limited Troubled markets are taking the corner (Spain, the Netherlands, maybe China) Core markets have been deflating slightly in Europe Trend to live smaller and greener

9 3) The housing markets in a nutshell What about Belgium? Housing prices stable, but wide discrepancies Impact of lower woonbonus limited in Flanders 380,000 Belgians had a second residence in March 2015 (EUR 50bn). Spain very popular Belgian coast: sometimes old stock, old owners Relatively cheap financing for project developers (margin of bp)

10 3) The housing markets in a nutshell What about China? Shenzhen Shanghai - Beijing Tier 1 Cities Tier 2 Growth Cities Tier 2 Cities Source: BNP Paribas Wealth Management Asia

11 3) The housing markets in a nutshell What about the U.S.? Metropolitan Area Annual change (%) Denver 10.0% San Francisco 9.7% Dallas 8.4% Miami 8.0% Portland 7.4% Seattle 7.4% Las Vegas 6.7% Tampa 6.4% Los Angeles 6.1% Atlanta 5.1% Composite % San Diego 4.8% Composite % U.S. National 4.4% Detroit 3.9% Phoenix 3.8% Minneapolis 3.0% New York 3.0% Boston 2.2% Chicago 2.2% Charlotte 1.9% Cleveland 1.6% Washington 1.3% Source: S&P Dow Jones, 25 August 2015

12 3) The housing markets in a nutshell What about the U.S.? Housing prices back to winter 2005 levels. Measured from July 2006 peak, the peak-to-current decline is about 12-14% Mortgage rates higher than in Europe (3.83% for 30Y fixed-mortgage rate (source: Bankrate.com). Cheaper to buy than to rent (15% vs. 30% of income) Buyers want smaller and greener turnkey properties Distressed sales at their lowest level (May 2015)

13 Europe 4) Commercial property in a nutshell Reasonable unlevered total returns, certainly in the U.K., but in peripheral countries, like Spain, as well in 2014 Sharpening prime yields across the E.U. in 1H15 The logistics and hotel sectors are flying high Prime assets, core assets in Tier-2 markets and non-core properties in Tier-1 locations heavily sought after

14 North America 4) Commercial property in a nutshell Attractive quarterly (unlevered) returns for all property segments in 2Q15. Logistics ranked first. Annual returns close to 15% in 2Q15 Offices: Increasing construction activity, but concentrated in the top-10 areas. Overall vacancy rate at 13.5% in 2Q15. Asking rents set to rise by about 3% in 2015 New York Manhattan office market: Downtown slowing, Midtown outperforming

15 Asia Latin America 4) Commercial property in a nutshell Occupier markets either weakening (Brazil ) or subject to lower growth rates (Asia, in terms of rental growth) Heavy currency losses in Latin America, mild losses in Asia (once converted into USD and EUR) Healthy occupier markets in Japan, with a focus on Tokyo. Loose monetary policy is helping

16 4) Commercial property in a nutshell Annual change of the dollar (22 September 2015) Major countries % Argentina (ARS) Brazil (BRL) Chile (CLP) China (CNY) Colombia (COP) Canada(CAD) Hungary (HUF) Indonesia (IDR) Norway (NOK) Russia (RUB) Singapore (SGD) Thailand (THB) Turkey (TRY) Source: TradingEconomics, 22 September 2015

17 REITs 5) Challenges for the listed sector Real interest rates still low low cost of (re)financing Positives Attractive dividend yields (sizeable spread of over 200bp with risk-free ) Long-term returns converging to returns carried by direct property Short-term volatility (correlation with common equity markets) Negatives Valuation: premiums-to-nav in Europe/ the U.S. widening discounts in Asia Volatility in the event of higher real interest rates

18 5) Challenges for the listed sector 10-year returns of >6% (except for the U.K.) Total annualised return as of 31 August M 1Y 5Y* 10Y* Asia ex. Japan -9.6% -10.0% 3.8% 7.1% Japan -8.4% -1.4% 16.3% 7.0% Europe excl. U.K. -4.6% 14.3% 12.0% 6.1% U.K. -3.6% 17.6% 17.1% 3.3% North America -7.1% -3.1% 10.5% 6.1% Source: BNP Paribas Wealth Management RESIG, 31 August 2015 Local currency including gross dividends

19 5) Challenges for the listed sector What about the Belgian SICAFIs? SICAFIs LAST price 1M (%) QTD (%) YTD (%) Gross dividend yield Aedifica Ascencio Target price Rating Befimmo Hold Cofinimmo Buy Homeinvest Intervest Office Vastned Belgium / Intervest Retail Leasinvest Hold Montea Retail Estates Buy WDP Hold WEB Werelhave Bel Hold QRF Source: BNP Paribas Fortis Wealth Management, 23 September 2015

20 RISKS 6) Outlook for property markets A prolonged slowdown in the Chinese economy A deflationary environment lasting for many years, pushing rents and values down Higher real interest rates, pushing financing costs up without boosting revenues

21 OPPORTUNITIES 6) Outlook for property markets An economic recovery in Europe, the U.S. and Japan Growing e-commerce sector Lasting low real interest rates, capping the cost of borrowing. Attractive recurrent income Ongoing international capital flows, supporting rents and values

22 Europe 6) Outlook for property markets Positive for core assets in Tier-2 markets or non-core assets in Tier-1 markets COMMERCIAL Neutral for prime assets (less based on fundamentals) Negative for secondary assets RESIDENTIAL Positive (from negative before) for core housing markets Positive for badly impacted housing markets

23 U.S. 6) Outlook for property markets COMMERCIAL Positive for core assets in Tier-2 markets and non-core assets in Tier-1 markets Neutral for prime assets Neutral for core housing markets RESIDENTIAL Neutral (from positive before) for previously bad housing markets given the recent recovery

24 Asia and Latin America 6) Outlook for property markets COMMERCIAL Neutral (from positive before) for prime and Tier-2 markets Positive (from negative before) for Tier-1 housing markets in China RESIDENTIAL Neutral (from positive before) for Latin America (Brazil) Negative for Tier-2/Tier-3 markets in China

25 REITs 6) Outlook for property markets Because of positives and negatives Neutral Annual total return expected to be close to gross dividend yield in the next 2 years If Asian REIT prices were to fall further, investors could gradually add new positions

26 6) Outlook for property markets Real Estate: Tangible in These Troubled Times Full report to be published on 15 October 2015 with summaries in English, French and Spanish Provides information about the world s commercial and residential property markets Looks at fundamental topics related to listed real estate

27 Thank you! Pol Robert Tansens Head of Real Estate Investment Strategy Member of the Royal Institution of Chartered Surveyors RICS