Global Real Estate Report Reveals Emerging Cities in which to Invest

SEPTEMBER 20, 2016

While the trend for South African real estate investors is to keep their stock in stable, safe-haven destinations like London, Melbourne, Chicago and Berlin, a global investment report issued this week reveals some new appealing pockets of value.

This investment insight can be found in a biannual report - the Global Real Estate Outlook - composed by property investment firm IP Global that identifies and analyses both the best-performing and emerging cities for property investment as well as those to approach with caution.

According to the report London, Manchester, Melbourne, Berlin, Chicago and Tokyo top the wish list for global real estate investors with current preferences of Sub-Saharan African investors being Adelaide, Brisbane, Hamburg and Vienna.

“Real estate investors from South Africa, Zimbabwe, Botswana, Zambia, Kenya and Nigeria have consistently shown a healthy interest in the United Kingdom and Australia – due to the shared historic connection” says George Radford, Director of Africa for IP Global.  “Europe and finally the USA follow.”

The Global Real Estate Outlook reveals London as a solid global investment choice and firm favourite with Sub-Saharan African investors - thanks to a constant housing supply shortfall putting pressure on house prices. Britain’s dawn-to-dusk, dynamic capital has seen interest rates cut from 0.5% to a record low of 0.25% following the European Referendum vote, making this market particularly attractive for buyers.

In Australia, the fast-growing city of Melbourne is well on its way to overtake Sydney as the country’s largest city by the mid 2050’s. Its apartment prices have shown a steady average increase of 5% per annum over the last 10 years but have recently accelerated with the city displaying average growth of 11% in the year to February 2016.  

Next up on South Africans radar is Adelaide - the 5th most liveable city in the world and 2nd Australian city behind Melbourne with an affordability ratio of 6:4. The city’s population forecast to set to grow 22% over the next 20 years to 2036 with median prices having increased 3.9% year on year to May 2016.

Elsewhere in Australia, the Queensland capital of Brisbane has been seeing vigorous investment, regeneration and infrastructure development. While property prices have been on an upward trajectory - with house values increasing 5.5% in the year to March – Brisbane remains a more affordable option than Melbourne and Sydney.

Sub-Saharan Africans also have a good investment appetite for Germany’s second largest city, Hamburg. Its property prices have increased by an impressive 40% in the last five years, with strong demand putting the pressure on - exceeding supply by as much as 33% in 2014. More good news for potential real estate investors is that rents are predicted to rise by 9.6% by 2018. Hamburg also offers a lower property tax of 4.5%, in comparison to Berlin’s 6%.

A further European city South Africans are exploring is Vienna that has held the number one spot in the Mercer Quality of Living index for the past seven years to 2016 and ranked number three on the innovation cities index in 2015. It boasts a 10.5% average property price increase per year over past five years.

Over the last decade, Vienna has experienced 10.1% population growth with a 27% increase expected by 2060.

A 50% supply deficit for one-bed apartments is predicted with less than 5 000 new apartments supplied and demand for 10 000 in the next ten to 15 years. In line with this rents were up 2.5% during 2015 with average apartment prices up 2.1% in 2015 and the total value of apartments in Vienna valued at EUR7.2 billion at the end of 2015, marking a 19,7% (EUR1.2 billion that year).

300,000 new residents are expected in the next 10-15 years, following growth of 43 200 in 2015 (up 2.4%).

The USA city IP Global recommends Sub-Saharan African investors set their sights on is Chicago. Showing average yields of as high as 7.9%, Chicago remains a top choice for investors seeking good value within the US.

SA investors made the most of the Rand’s bullish performance

While the Sub-Saharan African real estate investor market has not shown any radical shifts over the past year, Radford points out that South African investors took advantage of the window of opportunity an earlier strong Rand offered.

“South African investors typically prefer to purchase buy-to-let international residential properties as income-producing assets because they are more tangible than other property investments such as property funds. While their one or two bed units are rented out their tenants cover their bonds, and they can look forward to owning the property outright in years to come, or passing the asset onto the next generation,” he says.

“South African investors prefer to purchase buy-to-let residential properties as income-producing assets. While their one- or two-bed units’ tenants cover their bonds, they can look forward to owning the properties as an asset as one day or passing onto the next generation,” he says.

This region’s investors however also face barriers to entry, such as fluctuating currencies, the size and cost of global real estate transactions, and difficulties with obtaining mortgages. “That is why we’re focusing our strategy on exploring new potential markets in the regional parts of the UK, Australia, Europe, the USA and also Canada as these present our local investors with further options to grow their portfolios,” he says.

The Global Real Estate Outlook by IP Global can be accessed here.