International Perspective on Real Estate Investing

For many Europeans, homeownership is becoming a fantasy due to soaring house prices. The pandemic has certainly not helped things and the spotlight is increasingly fixed on the large financial institutions pouring billions into the European Real Estate market.

The pandemic, a monetary emergency of noteworthy extent, and which seems to have created an apparently never-ending upwards surge in the cost of residential properties — seems anything but a far-fetched mix. However, house prices in the EU grew by 5.5% last year, a rise nearly as large in scale as the 6.2% collapse in GDP that the European pandemic-battered economy endured. 

However, housing prices had been rising quickly in Europe long before the pandemic, yet the health crisis has brought its own unique accelerants. Tremendous government stimulus packages have helped keep borrowing costs at historic lows while prospective buyers' savings have grown amid stay-at-home requests. 

In addition, the pandemic has prompted both a significant social shift towards remote working and a recently discovered appreciation among millions for the worth of one's own home. Interest for houses has taken off, surpassing a slow supply. 

Despite the aforementioned, something else has been booming Europe's property market: the volume of institutional investment, specifically from major corporations, hedge funds, and other financial markets. 

As per information from Real Capital Analytics, institutional interest in Europe's residential market hit record highs in 2020, representing almost 30% of total investment activity, an enormous jump from the 10% recorded in 2015.

The progression of cash into European real estate is nothing new, however, the pattern has plainly been speeding up. 

On the other side of the world, looking at the Australian market, the country has experienced a shift in foreign investment. China is renowned for being one of Australia’s largest foreign investment contributors, however, in 2019-2020, the United States and Singapore surpassed Chinese investment. When comparing the numbers, in 2015-2016, China contributed $32 billion worth of investment into the Australian economy, yet between 2019-2020, investment significantly reduced, only contributing $7.1 billion. In comparison, the United States contributed $13.1 billion and Singapore $9.5 billion, in the same financial year. 

Of course, with the closure of borders and political tension between China and Australia throughout the pandemic, this cool-off is to be expected. However, as we begin to move out of global lockdowns, there is no doubt, there will be a flood of pent-up investment demand from China, generated through an accelerating economy. In the same breath, it's a massive bonus to see large amounts of investment from countries such as The United States, United Kingdom, Hong Kong, and Singapore, taking advantage of the currency play and opportunity available, making Australia still an incredibly attractive destination to invest. 

Corelogic data shows Australian house prices have grown 13.5 per cent over the year to June 2021, led by gains in Sydney, Canberra, Darwin, and Hobart. Making it the highest annual growth rate nationally since April 2004. A figure which is expected to grow even more in anticipation of borders reopening. 

As we head into the start of the new Australian financial year, and with the change the world has experienced, the change in the way in which we live, and change to the financial landscape, it’ll be interesting to see how the global markets adapt to this change and which markets, particularly in Australia, will attract the most interest.