Clare Hartnell finds property professionals worldwide more buoyant than in recent years.
I am currently at MIPIM, the annual gathering of property professionals from around the world, and can report that the mood is much improved from this time last year. Developers, property companies, investors and homeowners suffered disproportionately during the financial crisis. But now, finally, expectations for profitability, jobs and orders are all on the rise. House prices are climbing in key markets such as the UK and the US, contributing to the so-called ‘wealth effect’ which boosts the consumption patterns of homeowners.
The market is far from uniform. As revealed in our recent report, ‘Microclimates of opportunity’, investment is flowing into cities and regions, not entire countries. In areas hit hard by the recession, such as Spain and Ireland, certain regions are showing signs of recovery. In Spain, house prices are still about 30% below their 2007 peak, with half a million homes vacant, but development is picking up around Madrid. In Ireland, house prices dropped by 50%, but rose 6.4% in 2013—though excluding Dublin, the improvement was minimal.
In China, house prices have risen by as much as 25% in 2013 in first-tier cities such as Beijing, Shanghai, Shenzhen and Guangzhou. A number of measures, such as raising second home deposit levels; boosting the supply of affordable housing; introducing property-taxation; and making it harder for non-residents to buy, have been introduced to cool the market.
Increasing activity in the sector is a strong indicator that the global recovery is gaining momentum, although it would not take much to destabilise these improvements. As cities rather than countries seem to be the focus for investors and businesses alike, this can also mean distorted values in a small area, with the risk of some potential future realignment.
That said, the signs are pointing in the right direction and even countries that have been through a torrid time are beginning to attract investment again. Real estate and construction businesses have been in ‘wait and see’ mode for a long time. But now they need to identify these microclimates of opportunity, incentivise their key people and make sure that the correct controls are in place so that governance issues do not stifle their next phase of growth.
Clare Hartnell is global leader for real & construction at Grant Thornton.