How have real estate funds performed since 2010?

To understand the performance of real estate funds since 2010, you have to look back to 2007.

Investors in real estate development are presented with a very mixed picture in 2013. Several variables suggest that it is a difficult market, with some positive points.

It almost goes without saying that the last five years, since the 2008 financial crises, have seen poor investment returns in virtually every asset class except countercyclicals (which include gold and its highly aberrational returns). The economic recovery, in the UK, the Eurozone more broadly, the US and elsewhere, has been patchy and patchy. In response, investors have migrated from market-traded securities to real assets, including raw land and built-up properties.

So what has happened to real estate in its various guises in the last two or three years, as the shocks of 2008 settled and the recovery began in fits and starts? Real estate performance must necessarily be broken down into its various sectors for a reasonable analysis, which in many respects is an apples to oranges comparison. Below is a hodgepodge overview of the frequently cited indicators:

House prices are an indicator not only of land value but of the economy as a whole, and yet various external factors confound when drawing general conclusions of “people are paying to buy a house.” For the fourth quarter of 2012, Savills reports, UK average house prices were still below their September 2007 peak. In real terms, adjusted for inflation, that’s actually a 24 percent drop.

So why isn’t it a clear indicator? Mortgage financing and the inability of prospective homebuyers to obtain an adequate deposit means that there are buyers who simply cannot afford to obtain mortgages. In the last decade, the average deposit requirement for first-time buyers has risen from £12,000 to £58,000, a tough job when so many young people are struggling to find employment and lower wages. Set the lending rules and perhaps there will be more movement in this direction.

Institutional investment in real estate is significant, as the Pensions Real Estate Association, which covers £1.5bn in assets under management, found that its members own around 10 per cent (£155m) in Pension real estate. one way or another. But a May 2012 study from Maastricht University found that across the eurozone, the only indication of the return on real estate assets is the allocation of funds placed in such investments (i.e., the returns on those investments are unknown). . Growth in the allocation of funds to real estate investments prior to 2008 was strong, but slowed by more than 30 percent in mid-2010.

Housing construction is yet another indicator, which Savills reported in late 2012 as slow, but with several reasons for optimism. Startups are less than 55 per cent of what they had been in 2007 in England, Scotland and Wales (central London is a whole different story though, with prices and new builds soaring).

Land values ​​measured by Savills show reason for optimism, with end-2012 growth of 0.4 percent for urban land in the third quarter of the year, and price growth of 0.7 percent for new properties (in London, quarterly growth was a whopping 4.6 per cent).

Several media organizations offer both criticism and optimism for land investors, first citing the government’s Loan Financing scheme, which was unveiled in the summer of 2012. A report in The Telegraph in January 2013 suggests that the program six months old was not effectively providing more flexible financing for homeowners from the government’s infusion of £80bn in state-backed loans, however the full effects cannot be measured until at least one year after the start of the program (mid-2013). For homebuilders and land investors, the cost and slowness of the planning system is also hampering activity.

Forecasts for the development of strategic land into residential properties may be driven by a very different and powerful dynamic, which Savills calls “Income Generation.” Without ownership, the concentration of 20-34 year olds living in major metropolitan areas is settling into a rental mentality. While the largest group of owners are private individuals, unable to raise adequate debt funds, the largest organizations with cash are the most likely builders of rental properties (ie, tenant buildings). The demand is certainly there: a 7 per cent increase in the UK population between 2001 and 2011 has fueled a critical need for housing that is currently unanswered by the woefully slow pace of construction during the recession.