Research from the European Association for Investors in Non-Listed Real Estate Vehicles (Inrev) suggests that investors are expressing more concern over real estate allocations than their North American and Asian-Pacific peers.
Its 2023 Investment Intentions Survey found that 37% of European investors plan to decrease allocations this year and next. In comparison, 20% of North American and just 5% of Asia-Pacific investors said that they planned to similarly decrease their allocation.
Overall, a quarter of investors plan to reduce their global allocations to real estate over 2023 and 2024. Aligned with a 27% share of investors saying that they plan to increase allocations over the same period, Inrev said that this portended a ‘muted outlook’ for the industry.
Inrev wrote: “However, the current average allocation to real estate globally is 10.2%, only slightly below the average target allocation of 10.4%. The equivalent gaps narrowed significantly for European and North American investors, related to the dominator effect as other asset classes fell further than real estate during 2022. This effect has increased current allocations, and some investors from mature global economies could be technically over-allocated to real estate. On average, only European investors are above target allocations.”
This research comes as a slowdown has been reported in house prices across the continent. Last month, CNBC wrote that the German housing market was facing ‘a severe downturn in prices’. That story quoted Jochen Moebert, an analyst at Deutsche Bank, who said that house prices could drop by up to a quarter.
CNBC wrote: “Mortgage rates have soared, with a 10-year fixed rate up from 1% to 3.9% since the start of the year, according to Interhyp data, which typically causes demand to cool as fewer people can afford to take out loans. House prices have already declined around 5% since March, according to Deutsche Bank data, and they will drop between 20% and 25% in total from peak to trough.”
Meanwhile, over in Sweden, Bloomberg reported last week that apartment prices fell 14% between December and January, with forecasters predicting a 20% decline across the country’s housing market. The current market, it wrote, is seeing prices around the same level as before the Covid pandemic hit.
Bloomberg wrote: “Nine months of sustained losses have lopped off a large chunk of the build-up of Swedish home values, after an increase in borrowing and living costs fed through to prices. That’s made the biggest Nordic country one of the corners in the world that are seeing the deepest drops in the residential real-estate market.”
Meanwhile, the UK’s Office for National Statistics has said this week that home prices fell 0.3% in November, bringing annual growth in prices down from 12.4% in October to 10.3%.
The Financial Times wrote: “Mortgage rates have surged in the past few months, reflecting expectations of increased medium-term borrowing costs as the Bank of England seeks to tackle high inflation. The rise in rates has cooled the property market, which boomed during the pandemic when borrowing was historically cheap. The cost-of-living crisis, resulting from inflation running at above 10 per cent, is heaping further pressure on house prices with more people struggling to afford a deposit and monthly mortgage repayments.”