Global Real Estate

Investment in 2014By Dr. Alessio Lidozzi

Since the global financial crisis struck in 2008, real estate investment has

become a very attractive avenue of investment because of the potential

for relatively high yields in depressed markets. However, according to an

article in Bloomberg, we are currently presented with ripe conditions for

global real estate investment through mutual and exchange-traded funds.

Reactions to global economic conditions over the last five or so years

have driven interest rates down and preserved opportunities to buy

discounted assets, leading to record-setting investment into real estate

firms outside of the United States.

While investors are looking to capitalize on distressed economies, this is a

more forward-looking strategy than a quick cash-in, cash-out. According to

Bloomberg, the SPDR Dow Jones International Real Estate ETF,

generated $304 million in net inflows and saw its shares outstanding climb

to record levels. If we look at the change in industry fund flows YTD,

property ETFs now lead energy for the first time, which is significant.

In the case of the SPDR Dow Jones International Real Estate ETF, the

eight countries boasting the highest levels of foreign investment are (from

most to least): Japan (21%), the U.K. (14.1%), Australia (13.6%), Hong

Kong (10.5%), Canada (10%), France (9.2%), and Singapore (7.7%).

By comparison, the biggest holdings in the international property ETF are Mitsui

Fudosan Co. of Japan, Brookfield Asset Management of Canada, France’s

Unibail-Rodamco SE, Scentre Group of Australia, and Land Securities Group of

the U.K. Among the biggest international property acquisitions in the past year:

Citigroup, Inc. paid $697 million for an office tower in Hong Kong, GIC Ltd. of

Singapore paid $2.8 billion for a partial stake in a central London property, and

Manulife Financial Corp. of Canada paid $581 million for commercial property in

the Kowloon district. Countries with behemoth pension funds just begging to be

invested, such as Canada, are buying properties in locations such a Brazil, the

U.K. and Australia, facilitated by familiar ownership and legal structures.

Although there are positive signals such as the record level of shares outstanding

(117.8 million, up 400k shares from 2006) in the SPDR Dow Jones International Real

Estate ETF (a proxy for demand), some investors are concerned, as heightened

liquidity preceded the financial debacle in 2007, but as long as earnings increase

more quickly than interest rates, a drop in demand or value is unlikely.