Residential real estate markets «New World» exhibit high risks and returns

17.03.2011 00:05
Articles about real estate | Residential real estate markets «New World» exhibit high risks and returns Company experts Savills reported results of a comparative study of global real estate markets of the world: London, New York, Moscow and Hong Kong.

Characteristics, type and quality of urban residential real estate is a key component of its competitiveness on a global scale. Only a small number of cities in the world can be considered as part of a truly global market, it is the world's richest people and the functioning almost as a separate asset class for global investors.

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International real estate agency Savills undertook the new study, entitled «Global Cities» (Cities world-wide), within which were examined four key cities: Moscow, New York, London and Hong Kong. This study shows very clearly that emerging markets in major cities of the "new world" over the past five years, significantly ahead of the more established real estate market in the countries of "old world", but inferior to them in stability.

Savills study is unique in terms of comparison, home prices are not based on the equivalent sites in each city (which sometimes simply impossible to find), but on the basis of equivalent households. Assessment of their overall cost and scope of rent based on a survey of people who, in principle, can move into one of the studied cities.

On this basis, it was discovered that the real estate in Hong Kong by 50% more expensive than in London and New York - 15% cheaper (in pounds at the current rate). In addition, the analysis shows that all so-called global cities significantly higher on indicators of the broader market in their respective countries and act as this "funnel" for wealth, and especially - for the wealth created on an international basis.

Savills study was conducted in four cities in the world scale - the two developed and two developing countries - and found that the cost of a comparable basket of real estate is much higher in developing cities. In this case, instead of the standard price per square foot, which is used in the calculation of other indices, the company analyzed the costs of "actuator" or the value of the basket of objects, including the typical houses of the regional director, two local directors and four local administrative staff.

Explaining the methodology used, Yolande Barnes, head of research at Savills, said: "We believe that a more revealing is the comparison of the world centers on the basis of total property value for a key executive of the group, since this figure is the basic measure of competitiveness and the main argument for those decision-makers in global corporations. "

In Hong Kong at this moment, the total value of the basket of the seven sites is 15 million pounds (24,304,500 dollars). For comparison - in Moscow this figure is only 10 million pounds (16.203 million dollars) in London - 9.6 million (15.555 million dollars), while in New York - a total of 8 million (12.962 million dollars).

Hong Kong - the most expensive of all. London benefits to some


"Our analysis shows that each of the four studied cities worldwide significantly outperforms the broader market of their country, and serves as this" funnel "for wealth, - said Barnes. - This is due to attract funds the world's elite - the billionaires who invest in real estate for various reasons and have a funding source other than the general population. Our analysis of the objects held by mega people, shows that the world's billionaires live in a kind of international "Bogatistane", which is very much isolated from the rest of the market. "

Average price of homes occupied by international billionaires, about twice the figure for the regional directors on the basis of a standardized price per square foot and range from nearly 6.500 pounds per square foot of Hong Kong (112 U.S. $ 300 per 1 square meter) to about 2.500 pound in New York (43,200 dollars for 1 sq. m.) and 3.000 pounds in London (51 800 dollars per 1 sq m).

Hong Kong is the most expensive center for all types of households, including households of world billionaires. It is surprising, but for those working at the level of managers and directors, in the context of cities worldwide is the most profitable London. This is the cheapest place for local staff referred to the level that usually tend to live in more distant suburbs of the capital.

According to Barnes, the reluctance of ordinary London homeowners live in apartments, as well as the desire to have their own plot of land with gardens and pushes a similar population to the suburbs, dominated by private houses. In this case, buying a relatively cheap (by world standards) of housing, of course, can lead to what is on the way to the city should spend more time and money. A unique feature of London is likely to be able to adjust the time and cost of the road to the city. At the same time, high-rise and a more compact Manhattan, which by the same family have nothing against living in the apartments, offers the usual New York-based employees the opportunity to live virtually in the central districts of Manhattan.
Chart value sq.ft in pounds for different types of households
 

Picture: Residential real estate markets «New World» exhibit high risks and returns

Stability of the "old world" loses high risks and high profits of the "new"

"Analyzing the basket of objects by type of living, we get information about the fluctuation in housing prices - the main component of doing business in a particular place", - said Barnes. Studies have shown that the cost of living for the past five years has increased everywhere except in New York. Most recently, in 2005, cost of living in each of the four cities analyzed looked basically the same, and only in Moscow, the prices were slightly cheaper. However, by the end of 2010, the cost of housing in Hong Kong and Moscow, was significantly higher than in London, and the best prices were reported in New York.

In Moscow, the cost of buying a home for "actuator" has doubled, and Hong Kong - almost doubled. This very high rate of growth in the cities of the "new world" was accompanied by a significant variability (fluctuation of annual results) than in the "old world" where the growth (or lack thereof) was more stable. "It may seem that the rise in prices, and its variability may be related to the evolving nature of the economy of certain countries, whereas the more developed markets are more stable," - says Barnes.

 

Prices in million pounds

London

New York

Moscow

Hong Kong

2005

7.622.310 (12 350 400 dollars)

 

7.938.255 (12 862 300 dollars)

5.110.751

(8 280 949 dollars)

7.781.558

(12 608 458dollars)

2010

9.619.800 (15 586 961dollars)

8.047.965

(13 040 120 dollars)

10.327.426

(16 733 528 dollars)

14.928.745

(24 189 045dollars)

Change over 5 years

26%

1%

102%

92%

The difference between the towns of income over 5 years is even more pronounced in the real estate market. The growth in house prices CEOs in Hong Kong over the past 5 years was 148%, while in New York, the figure fell to 7%.

House of Regional Director

Growth over 5 years

London

47%

New York

-7%

Moscow

110%

Hong Kong

148%


Rent or buy?
In contrast, rents in all cities fluctuated less than the cost of capital. Despite a slight decline over the past years due to the lower activity of corporations in the world economy, rents in general showed better performance than the capital value.

 

City

December.-05

December.-06

December.-07

December.-08

December.-09

December.-10

London

6,0%

5,3%

4,8%

5,2%

4,6%

4,7%

New York

4,3%

4,3%

4,0%

4,4%

5,1%

5,0%

Moscow

8,4%

8,2%

6,6%

6,7%

5,6%

5,8%

Hong Kong

4,0%

3,8%

3,4%

4,3%

2,8%

2,6%

 

The recent rapid growth in capital values ??slowed everywhere except New York. In this city, the average rental income for investors who buy a portfolio of objects for a group of persons, including the actuator, the five-year period increased from 4,3% to 5%. In Hong Kong, by contrast, the gross income from rents amounted to 2,6% - compared to 4% in 2005, This makes lease clearly a cheaper option than buying when you move from city to city.

In London, also recorded relatively low income from rents, which averaged 4.7% for the baskets of the measured object, while Moscow demonstrates the highest rate - 5,8%. This means that the capitalized value of rent in this city close to the purchase price.

"Summing up our investigation, I would like to note that we have opened a virtual continent where the billionaires drive the market, - says Barnes. - The capital of the continent are Hong Kong, London, New York and Moscow. Real estate markets in these cities have more in common with each other than with the markets in those countries where they are located. "

"Global equity flows are the key to maintaining the health of these markets, and wealth creation in emerging markets over the next decade will provide them with sustainable growth - regardless of conditions on the domestic market of any country."


Note on methodology: Description of "actuator"

The means of comparison beyond the state borders is a uniform group of imaginary persons traveling to other cities in the world. This group or "element" consists of four households, each of which has different income and family circumstances. Two of them - are foreign workers, two more - staff, recruited from local residents.

Index includes the following "shopping sites":

 

 

4 manager

2 local directors

1 Regional Director

Head of household

Local administrative employee, a woman, 28 years old

Local director, a woman, 32 years

Regional Director of a large corporate conglomerate, a man, 52 years

In addition, we have researched and ownership of international billionaires

 

World Billionaire

Head of household

The owner of a large corporate conglomerate, a man 60 years

Source:Компания IntermarkSavills


Content tags: Overseas property
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