2017 Predictions for the international real estate market
With the new year fast approaching, BDO’s international real estate team have been considering the worldwide real estate market. We’ve drawn together the significant trends from some of BDO’s key geographical markets that our partners think are likely to carry into 2017.
Netherlands | Arjan Endhoven, Amsterdam
In the Netherlands, sustainability will be a key trend in 2017. With sustainability legislation coming into force by 2023, next year will see significant investment into the renovation of office buildings, as well as residential properties, with the Dutch government being the driving force behind the measures.
In addition, we will continue to see considerable investment by the healthcare industry into new residential buildings, driven by developments in the property market, sparked by an ageing population. The so-called ‘Silver Generation’ is big business in the Netherlands: new build apartments, with a high level of healthcare servicing, are springing up across the country, catering to a comparatively wealthy, older generation that is keen to remain independent for as long as possible.
United Kingdom | Russell Field, London
Unsurprisingly, 2017 will see continued uncertainty in the UK, surrounding both Brexit and the recent election of Donald Trump. No one can predict what will happen here but watch this space for updates from BDO as things start to unfold.
As we look to the capital, although the prime property market has begun to settle in 2016, the divergence between prime and secondary properties is likely to continue well in to next year. In the commercial property market, commercial retail warehousing – particularly that used for bulky goods - will continue to excel. Unlike other retail outlets, bulky goods are not heavily impacted by the internet; so, we find that there is continued occupier demand, leading to rental growth and in turn, to capital value growth not just in London but across the UK.
Turning to the residential market, London prices are likely to stagnate in 2017 and possibly into 2018. Properties on sale for £600,000 and less will continue to be in high demand, since they are unlikely to be significantly impacted by changes to the Stamp Duty rules – particularly considering that in many areas of London it is difficult to find properties below £600,000, driving demand.
The wider UK buy-to-let market may struggle in 2017, meaning that would-be home owners could find that these properties are far more accessible in the coming year.
Belgium | Erik Van Den Broeck, Brussels
As in the Netherlands, sustainability is one of the key trends for Belgium in 2017. Passive house-building is increasingly widespread, particularly in the construction of government buildings, which must adhere to the requirements of passive house by 2020. In line with this trend, Belgium will see increased demand for renovated or new build office space.
Of chief interest for the coming year are the three new shopping centres that are to be launched at the same time, forcing them into direct competition and sparking fierce debate as to whether there is room in the Belgian retail property market for large-scale shopping places. This will be a hot topic in Belgium for next year.
France | Sylvain Robby, Marseille
There is much doubt surrounding the relative market in France because of the upcoming Presidential election and investors in the property market are waiting to see the results of the election before making further investments; recent and far-reaching modifications to the taxe d’habitation has added to this uncertainty.
In 2017, France’s second and third cities – Lyon and Marseille – will start to see property hunters move away from Paris to find homes in a city that is not dominated by tourism. This will boost house prices outside the capital and bring some healthy competition to the market.
USA | Stuart Eisenberg, New York
In the US, the election has – predictably - caused much uncertainty. Nonetheless, sustainability of the commercial sector is a concern in the US, as it is in both the Netherlands and Belgium.
It is expected that infrastructure spending will increase in 2017 as a result of Trump’s election promises and subsequent win. And increasingly, we are seeing a trend for pension funds and insurance companies taking riskier investment opportunities, taking advantage of low destabilised asset yields; this is likely to continue into next year.
Canada | Salmaan Alvi, Toronto
In Canada, the main driver for 2017 will be fluctuations in the Canadian dollar following the US election. The Canadian dollar continues to fall against the US dollar, as well as other foreign currencies.
Foreign investment in Canada will continue to be problematic. Investment from China, the Middle East, India and even Europe has negatively impacted the availability of housing for many Canadians looking to get on the ladder. Accordingly, the government has implemented a foreign investment tax specific to British Columbia (to combat the escalating prices in Vancouver), which has helped to reduce foreign investment in the province. The government has also initiated a reporting regime that requires foreign investors to report the sale of a property to the various authorities, and to detail whether or not tax is payable. Indeed, this rule has now been extended to everyone selling a home, which has created some concern for Canadians who are anxious that regulations designed to curtail the actions of foreign investors will affect their own freedoms.
Affordability will continue to be an issue in the coming year; real estate prices have increased dramatically – upwards of 25% year-on-year – whilst incomes have not increased, making it ever-harder for people to buy homes. As a result, the rental market is booming and increasingly we will see a rise in purpose-built rental properties across Canada. The demographic is shifting long-term to major city centres and due to escalating house prices, they are opting to rent in the core cities. This will be the start of a long-term for the PRS market in Canada.
Finally, some parts of the country will continue to benefit from rising oil prices: some provinces of Canada, particularly Alberta, are governed by oil and commodities prices. Upward oil price swings, tied to US politics, mean Canada will continue to pump more and more oil in 2017, to the advantage of the oil-dominated regions.
Malaysia | Rejeesh Balasubramanian, Kuala Lumpur
In Malaysia, the residential property market is likely to remain stable in 2017. There is an oversupply of residential properties but demand for homes remains fairly steady, so the impact of the glut will not be as severe as in the commercial property sector.
Steady demand is fostered by the government’s introduction of reduced interest rates and other incentives, designed to entice buyers into the market. Developers are employing similar strategies - such as the offer of housing assistance, packages and discounts. Nonetheless, it is generally expected that things will not pick up particularly quickly during the course of the next financial year.
In the construction sector, business is booming: there are a number of government projects in the pipeline, for example the Mass Rapid Transit (MRT) project, as well as a high-rise government project in Kuala Lumpur. Accordingly, the Malaysian construction market is likely to improve significantly in the next financial year.
India | Nidhi Seksaria, Delhi
Of great significance this year has been the demonetisation of large notes in India. The crackdown has seen all 500 and 1,000 rupee notes removed from circulation, which has had a notable impact on the real estate sector because the prominent belief is that this money is mostly in this sector; the impact of this is likely to carry through into 2017.
Following demonetisation, there has been disorder in the banking sector, with some banks having more money than others to lend in the next quarter. We also anticipate a considerable fall in interest rate, which could result in increased affordability because of lower property EMIs.
In 2017, the secondary market may see corrections in pricing, whilst the primary market will remain steady, leading to some divergence between the markets; this will have a real impact on the real estate market. However, because of lower interest rates, properties have become far more affordable and it is likely that the market will pick up in the first quarter of the next financial year.
Also upcoming is the RERA - the Real Estate Regulation Act – the bill will be effective for the first time in India in 2017. As when securities regulators were introduced, it is imagined that the real estate regulators will make numerous changes to the realty market.
Another catalyst for change next year will be REITs, which will become far more attractive in the light of the impact of demonetization on interest rates. Another issue of note is affordable housing, which has been in the trust of the government for the last few years and to which it has continuously added a number of tax prohibitions etc. in order to subsidise this. More on REITs from BDO next year!
Australia | Sebastian Stevens, Sydney
In Australia, rising global bond yields will continue to drag down the A-REITS market, as capital is redeployed. Equally, rising interest rates raise concerns about property values; the result is falling investor confidence, who fear that rising interest rates will cause property values to fall.
Another trend worth following in 2017 is the Sydney housing bubble. In anticipation of high future asset value, investors in Sydney’s property market have driven up prices. Fears abound about a dramatic bursting of the bubble once prices reach their peak. This will certainly be hot topic going into the new year.
If you are looking to move in to any of these markets, or would like to find out more from any of our partners around the world, get in touch! We’d love to discuss these predictions with you. Contact Anna for more information.