The last 2 years with the pandemic have been harrowing, yet the property market has performed far better than expected globally. Central banks in several countries have raised interest rates to control inflation following 2 years of generous incentives to stimulate the economy, while others, like the Fed, plan to do the same. In response to expected inflation and interest rate increase, the US stock market dropped significantly recently, resulting in a 10% cumulative loss for the year. Barely 4 weeks into the year, and the stock market has already started with a loss! And, although the world has adjusted to the ‘new normal’ as best as it can, Covid still rages on and there is still uncertainty with Omicron and possibly further mutations to come, as well as other headwinds, including supply-chain disruptions. In light of this, what will the global property outlook 2022 be like? Read on to find out.
It has been an epic 2 years for the global property market. Covid-19 lockdowns sparked frenetic real estate activity as house buyers and investors took advantage of low interest rates and other tax incentives. Rather than dampen interest, the pandemic seems to have fuelled the appetite for property as the home became the place to not only live, but also work and play.
Many upgraded to larger homes, whilst first home buyers seized the opportunity provided by low interest rates and other incentives. Prices skyrocketed; in some cities, up to pre-pandemic levels as demand far surpassed supply.
Latest data shows that the value of the world’s real estate increased 5%, and hit a record-breaking $326.5 trillion in 2020. Central to this growth is the residential sector which accounts for a whopping 79% of total global real estate value, and which experienced an increase in value of 8% y-o-y to approximately $258.5 trillion. IMF’s recently released Global Housing Price Index also attests to global capital gains in housing, with 75% of those countries listed in its index gaining in capital in 2020.
Notably, 75% of the total global residential value is concentrated in only 10 countries: Australia, Canada, China, France, Germany, Italy, Japan, South Korea, the UK and the US.
The worth of real estate is more than all global equities and debt securities combined, and almost 4 times global GDP value.
Research by Savills also shows that although the capital growth of global real estate was lower than securitised debt, equities or even gold, its resilience or ‘safeness’ is highly prized by global investors looking for both capital appreciation and income.
Thus, as the Covid virus continues to mutate, and with uncertainties surrounding the full extent of Omicron’s effects, will property continue on its growth trajectory?
The general consensus among experts seems to be that residential real estate will continue to perform well in 2022, particularly in the prime markets. After all, Covid has changed the way we work forever and shown us how versatile the home can now be.
For example, cities in the UK are looking at strong performance following a year of spectacular growth despite the removal of stamp duty holiday as normalcy returns.
Birmingham, in particular, will be one to watch for knock-on benefits on the housing market arising from the Commonwealth Games.
Australia is stirring from lockdown as borders slowly reopen and foreign students and migrants start to return, bringing life back to the centre of popular cities like Melbourne and Sydney.
Brisbane, like Birmingham, is also set to benefit from the coming Olympic Games in 2032.
Meanwhile, in the US, pundits predict that Manhattan will continue experiencing price growth particularly in prime markets, as well as in Los Angeles and Miami, where demand exceeds supply and favourable lending conditions abound.
However, the strong performance of the global property market will be tampered by potential headwinds including increased taxes, reduced stimulus, and cooling measures, which will soften the rate of growth.
Indeed, with travel restrictions starting to lift worldwide and the global community adjusting to life with the pandemic, central banks in several countries are raising interest rates to tame inflation. The UK, South Korea and New Zealand raised interest rates last year, whilst the USA expects to raise its rates 3 times this year. For the UK, it is the first time that the Bank of England has raised its rates in more than 3 years, from 0.1% to 0.25%.
Singapore, which had a spectacular performance in 2021 in both private residential and public housing segments, very recently imposed a new raft of cooling measures to control property price inflation—its 13th in almost as many years!
Higher interest rates could slow soaring house prices, but perhaps not by much, given how demand continues to outstrip supply in the world’s top cities. There are still bargains to be had in several cities where the property cycle still has a decent runway for growth (e.g. Birmingham and Manchester in the UK; Perth and Brisbane in Australia), but it will be prudent to assess the fundamentals for growth and look out for barriers that will affect investment returns. Equally, there will also be cities where property prices are now at the highest point of the cycle which would impact cash flow (e.g London), hence it is important for investors not to be driven to jump on the bandwagon from the fear of missing out, rather, to look out for private deals or employ effective strategies for positive cashflow.
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By Vivienne Pal
Feature image taken from unsplash.com