Opportunities abound but credit is still crunched

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With investors expected to increase their allocation to property over the next two years, it follows logically that they perceive opportunities in the current environment. In general, this seems to be the case, but there is a significant difference between the perception of opportunities in residential and commercial markets. In addition, the availability of credit makes a big difference in the ability of investors to take advantage of available opportunities – even for those at the wealthier end of the spectrum.

Assessing the asset class: residential 7 of 15 Investing with a home bias 5 of 15

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In all, 76 per cent of investors say that they perceive opportunities in residential property markets, but 60 per cent of that total agree when asked whether a lack of available credit is making it difficult to take advantage of them. Even though many wealthy individuals buy with low levels of leverage, investors do seem to feel that a lack of access to credit is having an impact on their ability to take advantage of opportunities. In most areas of the world, banks are providing much less mortgage finance, with lower levels of loan-to-value.

There is slightly less optimism about the opportunities in commercial property – and credit here is a much bigger issue. A total of 68 per cent of investors see opportunities in the current market, but three quarters of that group say they are finding it difficult to take advantage of them because of a lack of credit. This finding demonstrates how important leverage had become in the commercial market. Today, if debt is available at all for this type of investment, only the most experienced investors and developers with a proven track record can access the market.

Which of the following statements best describes your current view of the global property market across the following categories? Residential

 

 

Which of the following statements best describes your current view of the global property across the following categories? Commercial

 

Aside from the availability of credit, investors need to be careful how they use leverage in their property investments, according to Philip Jeffcock, Real Estate Director at Barclays. “You are adding risk to what is already a very concentrated risk scenario,” he says. “You need to be careful that the risk-return relationships of your property portfolio match those of the rest of your portfolio. If you can reduce the level of leverage then you reduce the risk and you can therefore focus more on the returns.”

Another hurdle preventing investors from taking advantage of current opportunities is the expectation gap between buyers and sellers – in other words, sellers still expect higher prices than buyers are prepared to pay. “What’s happened in the past three months is a lot of people have suddenly woken up and decided to buy some real estate,” says Angus McIntosh, a Partner and Head of Research at King Sturge. “But the problem is that now nobody wants to sell. So whereas there was quite a lot of stock around last Christmas and few buyers, now there are quite a few buyers and very little prime stock. The market is active for the best buildings; secondary investments are still very difficult to sell.”

Since January 2008, has the market value of your property portfolio increased and do you expect it to do so in the next two years?

 

12% Homes in the U.S. repossessed since the December 2008 records began and so.

 

In general, there is guarded optimism among the high net worth respondents that their property portfolio will increase in value over the next two years. Just under half of respondents expect the value of their portfolio to increase, but only 23 per cent expect a decrease, with the remainder expecting no change. Investors from Canada, Singapore and India are most bullish about the future; those from Spain and the GCC least so. Interestingly, investors from the GCC are also most likely to increase their allocation to property. This suggests that they may have a longer time horizon, and do not necessarily expect prices to rise within the short to medium term. Of course, an increase in the value of a portfolio could be driven by two factors: first, the value of properties could be rising; but second, investors could be adding new properties to their portfolio, which our figures on allocation suggest could be the case for many individuals.