With a sanguine projection for global real estate, Savills PLC has added to the growing expert viewpoint on the outstanding opportunity for wealth creation in the world’s pre-eminent asset class.
Real estate is the world’s largest and most important asset class. All the property in the world, including commercial and residential property, is worth an estimated $228 trillion.
To put this figure trillion in perspective, it’s more than 12 times the GDP of the US or 18 times the GDP of China. The value of all the gold ever mined throughout history pales into even greater insignificance at a mere US$7.5 trillion (World Gold Council 2017 estimates).
As the world’s largest asset class, real estate exceeds – by almost a third – the total value of all stocks, shares and securitised debt combined. It is about 2.3 times the value of outstanding securitised debt (~$100tn), and 3.3 times the total value of equities (~$70tn).
Global real estate values have grown by 5% over 2016. With GDP (at constant prices) growth at 2.3% in 2015/16, the world’s real estate value has grown faster than its income. This means that the world now owns real estate assets worth 2.8 times its annual income (GDP), a 3.7% increase from 2015.
Residential property dominates the global property market at $168.5 trillion, making up three quarters of all real estate by value. North America holds over a fifth of the world’s total residential asset value, despite having just 7% of the world’s population. This has two implications for potential investors: 1 – Residential markets of USA and Canada are disproportionately valuable currently, and 2 – Population centers in Asia are poised for a steep rise in the share of global real estate value as housing supply catches up with demand. Unlike China or Hong Kong, India’s real estate value is substantially undervalued and can be expected to drive growth for the region as a whole.
The 2nd largest asset class in real estate is Commercial property, which totalled $33.3 trillion in 2017, almost half the value of the entire global equities market. More importantly, this is one of the fastest growing asset classes, and has continued its sustained trajectory with 7% growth since 2016.
North America is home to the most valuable commercial real estate market, estimated at $9.5 trillion or 29% of all global commercial property value. This large, mature market saw 31% (worth $8.1 trillion) of all global big-ticket real estate transactions in 2017. After the US, the next most valuable national commercial real estate markets are China ($3.6 trillion), Japan ($2.8 trillion), Germany ($1.7 trillion) and the UK ($1.7 trillion). A region’s share of the global commercial real estate value is closely linked to its share of GDP. In fact, the commercial real estate market grew at the same rate as global GDP in 2017. With developing economies like India growing much faster than the global average, commercial real estate values are set to follow in-sync over the next decade.
Population growth, urbanization, accelerating GDP, and the development of top commercial districts all contribute to India being in the spotlight for global real estate investors over the coming decade. Growth opportunities in developed markets are slowing down and India has become an increasingly attractive investment destination as it catches up to its projected share of the global real estate market, especially within the residential and commercial sectors. With a suite of new financial technologies connecting isolated pockets of supply and demand to create efficient marketplaces, discerning investors today are poised to profit from the bright future of Indian real estate.