Impact of world turmoil on the global real estate industry
This post from Reportlinker highlights four ways global turmoil is affecting global real estate.
Conflict and economic strife affect the world in many ways. It disrupts people’s lives and creates instability in the business world. It also affects business real estate, causing construction to slow and investors to rethink their commitments.
How has global turmoil affected real estate? Here are four ways:
- Brexit affects the UK: During the second quarter of the year, 263,517 UK businesses were struggling financially, according to insolvency firm Begbies Traynor. This was lower than the previous quarter. However, both quarters were prior the Brexit vote and, the firm warns, real estate and construction are more vulnerable during an economic downturn. In the three weeks following the vote, 50,000 property firms were experience financial difficulty, several property investors pulled out of the UK, and London property values were expected to fall up to 20%. Begbies Traynor forecasts conditions will worsen for six months before stabilizing into what it calls “the new normal”. Source: TelegraphWhile some investors have pulled out of the UK, fund managers have cut the value of their property funds up to 10%. It is estimated up to $6.6 billion could be up for sale in the wake of the Brexit vote. Source: The Guardian
It isn’t just commercial property and real estate companies that are affected. Residential property also suffers. The British government, Fitch and Moody’s, and the Bank of England all expect housing values to fall by 2018 from 10% to 25%. The average home will see values fall $82,065 from before the Brexit vote. It also would become more difficult to qualify for a mortgage, and homes may be vacated as foreign nationals are no longer able to live in the UK. Source: Telegraph
- Foreign investors leave the U.S.: As the U.S. dollar rose in value and economies around the world falter, foreign investment in the United States fell sharply. The increase in property values also scared away investors. Between April 2015 and March 2016, foreign spending on rental and vacation properties fell to $35 billion, its lowest level in three years, according to the National Association of Realtors, and residential spending fell $1 billion. The affects of these cuts was seen mostly in warm weather states. Chinese residents spent the most on U.S. property, buying $27.3 billion worth last year. Source: ForbesForeign investment by the Chinese in particular has been affected, especially in New York. Chinese investors flooded into the city in 2014, but since the exchange rate and economic uncertainty back home has made them rethink their decision. There have been very few bids from Chinese companies for new real estate ventures. Most property investment companies, however, are not worried. The investment void is being filled by companies from Canada and the Middle East. Source: The Real Deal
- The end of the luxury New York property?: For four years, New York City saw a boom in the ultra-luxury properties, high-rises valued at $10 million and higher. These properties were purchased mainly by investors. Several factors have affected their construction: U.S. federal scrutiny of the investments, many of which were all cash deals; new restrictions in China on the outflow of capital; the Brexit vote; lower Middle East gas prices; and tax increases. These factors have forced developers to lower prices and delay projects. But New York City is not alone. There is an oversupply of ultra-luxury properties in many of the world’s major cities. Many properties are staying on the market for more than a year, and some sellers are taking a loss. During the first half of 2016, sales of properties listed at $10 million or higher fell 18%. Source: New York Times
- In Germany, things are looking up: Meanwhile, Frankfurt, Germany, has seen the opposite occur. The city has seen an increase in ultra-luxury properties as it attempts to lure foreign investment. For the past decade, Frankfurt has attempted to rival London in terms of investment and real estate values. It may be getting close to its goal. Over the past three years, demand for property has been high with condo prices rising 28%. A new 565-foot tall luxury apartment building called the Grand Tower, is scheduled to open in 2018. Prices will average around $9,000 per square foot. Source: Forbes
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