As investors now expect the US Federal Reserve to normalize interest rates at a slower pace, real estate markets and the share prices of property stocks may experience some relief.
Because the economic situation varies in different countries, their real estate markets may diverge.
In Asia, it’s hard to find quality investment opportunities, especially in China and Singapore.
Opportunities may still exist in some Japanese real estate investment trusts (REITS) and corporations that hold Grade A office buildings or residences in Tokyo, and Hong Kong developers who have projects in Central.
Prices and transaction volumes of Hong Kong homes may decrease this year because of the potential rise of mortgage rates. We are less positive for the overall real estate market in the city.
In Europe, easy monetary policy and a low-interest-rate environment have led to feverish interest in real estate assets, and some may have become overvalued.
In fact, the region’s economy has shown no notable recovery, corporations are struggling, and demand is weak, so we are conservative about the outlook, given high valuations.
The rebound in the US economy will likely support the real estate market. Firms that own commercial properties are likely to experience strong growth.
US REITs are now trading at an average discount of about 10 percent to their net assets. Their earnings forecasts this year are for about 8 percent.
We believe they will be able to maintain a positive outlook.
Overall, the decrease in valuations of properties will hurt listed developers’ share prices.
But insightful value investors may seize investment opportunities.
The US and British REIT and property markets are supported by good fundamentals.
We are overweighting both markets.
Meanwhile, home prices in Australia and Canada will continue to be under pressure because of low commodities prices.
This article appeared in the Hong Kong Economic Journal on Feb. 24.
Translation by Myssie You
[Chinese version 中文版]
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