Real Estate Investment – What are the Trends for 2016?
Real estate has always been popular as an alternative investment due to the solidity of bricks and mortar.
However, as the recent global financial crisis demonstrated, real estate prices can go down as well as up. But over the long term, it can be a profitable investment supplying decent returns, and is often chosen by investors to provide a steady stream of income to fund their retirement.
According to the respected US and Canada-focused Emerging Trends in Real Estate report, which looks ahead to issues impacting the market in 2016, continued global uncertainty means that hard assets such as property remain an attractive option for investors.
Now in its 37th year, the PWC-produced report looks at commercial and domestic real estate issues. One of the big trends for the year ahead is predicted to be the growth of ’18 hour cities’ – smaller US cities mimicking the open all hours development of places such as New York and Washington DC – which will attract more workers. As such, they will require housing and the report suggests this makes smaller cities attractive real estate investment options for those without the capital to buy in the bigger, more expensive cities.
It also points to new growth in the suburbs, which investors have often ignored in favour of urban real estate investment. The report predicts that millennials will shift from urban homes to the suburbs, which will create demand not just for housing but for the amenities and transport services they are used to in cities.
For those keen to invest in city areas, one emerging trend worth watching may be urban farming – using old industrial properties and roofs to grow food. The report reckons this will be an excellent investment opportunity for the future.
Meanwhile in Europe, Norway’s Norges Bank Investment Management (NBIM), which manages the country’s huge oil fund, pointed to population growth in Asia as a major driver of future real estate investment.
NBIM is opening a Tokyo office to invest in real estate in Japan and, in a discussion note on real estate investment, it said: “Overall, a considerable population growth, combined with positive wealth effects and urbanisation, appears to favour emerging markets, particularly in Asia.”
The note also highlighted the potential of investment in commercial properties for retail and space for logistics businesses satisfying online orders for customers. In addition, investors putting capital into green, sustainable buildings could also see higher returns due to better rents and occupancy rates combined with lower operating costs, as increasing number of businesses seek out ‘green’ properties to boost their corporate reputations.
Investors who are considering adding real estate to their portfolio face a number of potential benefits and risks. As well as building up equity, there can be a solid monthly income plus tax deductions for mortgage interest. However, tenants who fail to pay or damage a property are also a risk. Plus, real estate remains a longer-term investment; in many cases, a property has to be sold before you can release your capital.
In addition to the basic investment of buying real estate to let, which provides rental income, there are a number of other investment options available in the sector. Real estate investment groups allow people to put money into a block of apartments, for example, and manage the property portfolio on the investor’s behalf in return for a fee.
Real estate investment trusts, on the other hand, use investors’ capital to buy and run properties and the trusts are bought and sold on the stock exchange. They have tax benefits because their status as a trust means the majority of their profits must be paid out to investors.
These vehicles are generally long-term investments but real estate traders buy and sell properties, with the aim of making a fast profit, usually within a few months. This is a more risky approach, but like every investment, the type of real estate investment you choose will depend on your appetite for risk, how long you want to tie up your capital, and the kind of returns you are hoping to achieve.