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World class cities with room for improvement


Julia Hughes

Geopolitical issues causing slower real estate trade and investment in Europe and America may well benefit Asia Pacific, says Yolande Barnes, Director of World Research at Savills.

Visiting Australia this month Yolande outlined how geopolitical disruptions took over from global economic conditions last year as the major driver of trading behaviour in real estate. 

The surprise election of Donald Trump in the US, the rise of extreme populist parties in Europe and tightly contested elections in Italy, Netherlands, France and Germany are all contributing to an uncertain investment environment in the world’s largest real estate markets. 

In 2016 global real estate trading levels dropped by 12% with Europe, the Middle East and Africa (EMEA) region down by 21%. 

According to Yolande “this is significant for the industry and may mean that global trading will once again start tilting away from the USA and Europe and toward Asia again.”

“The Australian market is significant within the Asia Pacific region, and Sydney and Melbourne being world class cities have attracted a significant amount of capital,” she says. 

Other growth cities she named include Shanghai, Beijing and Ho Chi Minh City, with Singapore and Hong Kong declining in growth over the past few years.

“Depending on the risk you are willing to take, within Asia, Vietnam is a great example of high growth and a captive real estate market Ho Chi Minh City probably being the hot spot.

“If you wanted a low risk and less volatile market, you might for example look at Tokyo. It’s not high yield but it has stable income,” Yolande says.

In a world where low interest rates have pushed asset prices including residential property to the full, Yolande says the challenge for real estate investors is finding value. With income now a focus for many investors over capital growth, property in cities in great locations with natural advantages are becoming increasingly sought after. 

“Buyers all over the planet are beginning to recognise that neighbourhoods offering a high quality of life will appreciate in value, not just so many square feet of bricks and mortar,” she says.

Sydney, offering sunshine, beaches and a stable and transparent political system appears well placed for income-seeking property investors. However, the local real estate market is not without challenges Yolande warns.

“I think the biggest challenge for Sydney is its urban form. It's very extensive and low lying and needs a higher density around transport nodes,” she says.

“But equally, there have been some interesting developments recently and new infrastructure investment that will make a big difference to the city. In Sydney there are huge longer term opportunities.” 

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