Global property investment firm IP Global expects the knee-jerk reactions of 2016 to be behind us; major stock exchanges have long since bounced back following the shocks of the Brexit vote and US presidential election and there’s a strong sense of “business as usual” in the markets. The most recent IMF WEO update mirrors the broad consensus of analysts: all being well, 2017 should be a year of “modest growth”.
Yet global economic and political uncertainty mean that these broad predictions come with a very clear health warning. Further short sharp shocks may manifest in the form of interest rate hikes in the US, elections in some of the EU’s biggest countries, Brexit negotiations, oil prices and currency fluctuations. Locally, the leadership crisis and battle for the ANC presidency, as well as economic stagnation will continue to fuel the search for safe foreign investment options.
“The search for assets which lessen the effect of economic and political risk explains why property – and in particular, residential property – looks set to become even more of a key investment strategy in 2017,” says George Radford, Director: Africa of IP Global.“Property will continue to be a stable asset class and way of diversifying this year.”
“Property enables investors to mitigate exposure to political and economic risk and volatility in their home market as well as currency fluctuation risk. It enables them to diversity their assets into tangible, physical, long term and value-enhancing investments.”
Radford says IP Global’s clients have indicated that real estate ownership is a long term strategy to absorb the cyclical nature of the market and has a low correlation with other assets classes, and low downside risk.
“Our clients have found their property investments have been more stable and less volatile than their stock investment portfolios, which is increasingly meaningful as risks are, as was discovered in 2016, increasingly difficult to predict and mitigate.”
The steady upward performance of the UK property market over the past decade, despite the financial crisis and subsequent Brexit surprise, shows that property is more stable than traditional, and often more volatile assets such as stocks, bonds or commodities. “Following the global financial crisis, London property dipped less and rebounded more quickly than other asset classes,” Radford says.
“There are also tried-and-tested ‘safe haven’ markets in the UK, US, Australia and Germany that are increasingly attractive”, says Radford. “They are mature, safe markets where the fundamentals (supply-side shortages, population growth and the desire to be part of an ‘urban hub’) offer attractive yields and long-term capital growth.”
IP Global’s policy is to target current unknown pockets of value in high-potential new and existing markets. During 2017 its focus will be on:
• Greater London, Birmingham, Manchester and Liverpool in the UK, as it expects to take advantage of regeneration, transport upgrades and relative affordability.
• Melbourne and Sydney in Australia – due to strong population growth in each area and under supply.
• Chicago in the US, as it is undervalued, and a booming tech and financial hub. Donald Trump could adopt a protectionist stance which could make things tricky for foreign investors, Radford warns, but possible changes to lending restrictions could boost the market. Realistically demand in Chicago’s market is locally-driven, which we don’t expect to be impacted by any of President Trump’s policies.
• Berlin in Germany, the largest recipient of venture capital in Europe and where 400 000 new residents are expected by 2030.
“While we expect to see continued knee-jerk reactions to uncertainty and shocks, possibly related to Brexit and the Trump presidency, we believe short term uncertainty can, in fact, create opportunities for property investment – such as the foreign exchange opportunity – and new waves of capital flows.”
Radford says the knee-jerk reactions of 2016 appear to be behind us. “Stock exchanges have bounced back following the shocks of the Brexit vote and US presidential election and there’s a strong sense of “business as usual” in the markets. Modest growth is expected in most major markets”.
While the events of 2016 resulted in investors sitting on the fence, IP Global expects investors to regain their confidence in 2017 (which we have already witnessed in the opening weeks of the year with increased level of investor activity), but not to the extent that they will take too many risks. This will underpin investment in property in relatively safe and mature markets, boosting investment value in this asset class.