Something that is “emerging” is technically coming into view or taking on new importance or relevance. By the same token, “emerging” can mean stepping away from a place or situation while not really being new. With global economics such as they are and fresh rules (higher interest rates) to play by, what counts as emerging real estate markets for investors in 2016 will be a flexible notion. Because yes. The UK is indeed emerging.
While mature London is no one’s idea of a newly emerging market — in the same way other European centres like Paris and Golden Visa Lisbon are not emerging — several locations in Europe could prove to have emerging market status in terms of value this year. “We still favour parts of Europe that are offering excellent growth potential in asset values as well as comparative value in terms of the Euro currency,” explains Jonathan Gordon, distribution director at IP Global in Hong Kong. Gordon particularly likes Berlin, still hovering on the investment periphery, calling it, “A tier-one city trading at tier-three prices. There is a chronic undersupply in central areas and with the ability to fix mortgage interest rates at current levels for 10 years, a transparent legal system and no capital gains tax to pay after holding an asset for 10 years, the investment case is compelling.”
Second- and third-tier cities in stable safe haven markets are the name of the game this year. In the United States, the Urban Land Institute and pwc pegged spots like Austin and Dallas, Atlanta, Denver and Portland, Oregon as key cities for the next year, while in Canada the shift is moving east, to under-the-radar Montréal, Ottawa and Saskatoon bucking for investor attention. “Faced with rising and increasingly unaffordable housing prices, Canadians across the country are instead choosing to rent. And it’s not just those priced out of the market who are renting: downsizers and retirees also are driving demand for rentals as they opt to turn their equity into cash. Rental demand is likely to remain strong in locations such as Montreal, where a traditionally strong rental market already exists — as well as centres like Toronto, with its housing prices and solid population growth,” said ULI/pwc’s Emerging Trends in Real Estate 2016. North of the border, ULI/pwc stated American markets like New York and Los Angeles, typically the Top Five, have slipped as investors seek potential rather than traditional appeal; most of the big five are pricey. “Growth potential seems to be the reason behind the movement of markets within and into the top 20 for 2016. The market may be poised to take a more offensive approach in 2016 as the economy strengthens and real estate fundamentals improve.”
Not surprisingly, “The UK remains a favourite for Hong Kong investors, who are looking to pockets of value in outer London and to Northern Powerhouse Manchester,” adds Gordon. “In … Australia we’re still seeing huge amounts of interest in Brisbane and Melbourne.”
As if the Chinese economy and interest rates weren’t enough to keep an eye on in 2016, research by Bank of America Merrill Lynch is cautioning investors on the weather. “Caused by the prolonged warming of the waters of the central Pacific, El Niño could cause severe global weather patterns, deeply affecting the world economy for the first time since 1998,” said BoAML’s Global Emerging Markets report for 2016. “An aggressive El Niño might lead to higher food prices and inflation. Countries dependent on fishing and agriculture are most vulnerable.” Some of the best performing Asian real estate markets over the past few years have been locations with prominent agricultural industries (Indonesia and the Philippines chief among them). Nonetheless, ULI/pwc places Jakarta and Manila alongside Osaka, Seoul and Auckland as locations with the strongest urban investment prospects this year, while BoAML expects India will be the year’s regional star. Overall, “The second-largest emerging market is again the world’s fastest-growing economy. We expect India to grow by 7.6 percent in 2016. The EEMEA region (emerging Europe, the Middle East and Africa) could rise by 2 percent. Latin America should contract by 0.2 percent, largely because of a 3.5 percent decline in fiscally challenged Brazil.” Though property prices have skyrocketed in recent years, Brazil’s current woes — a Petrobas bribery scandal, president Dilma Rousseff facing impeachment and a untenable deficit budget — are putting the BRIC giant on shaky footing, and that could knock it back down to “classic” risk market status.
As expected, ULI/pwc’s list of major risks to Asia-Pacific this year includes US interest rates rising, currency movement and China’s flagging economy (plagued by growing debt, an unhealthy reliance on investment as part of the GDP). With currencies all over the map and key exports in some sectors suffering, 2016’s emerging markets will be concentrated in developed markets; Tokyo and Sydney top ULI/pwc’s list of hot spots for the coming 12 months, IP Global is looking at Europe and the UK. “This year’s Investment Prospects survey reflects an overwhelming preference among investors to buy in the region’s most developed markets — Japan and Australia,” said the report. “Tokyo’s top ranking in 2016 completes a hat trick of wins for the city over the last three years. Osaka, Sydney, and Melbourne occupy the remaining top four places, underscoring investors’ quest for asset quality and yield.”