Real estate and construction

In search of the microclimates of opportunity

Clare Hartnell finds property professionals worldwide more buoyant than in recent years.

I am currently at MIPIM, the annual gathering of property professionals from around the world, and can report that the mood is much improved from this time last year. Developers, property companies, investors and homeowners suffered disproportionately during the financial crisis. But now, finally, expectations for profitability, jobs and orders are all on the rise. House prices are climbing in key markets such as the UK and the US, contributing to the so-called ‘wealth effect’ which boosts the consumption patterns of homeowners.

But the market is in no way uniform. As revealed by the report we released this week, ‘Microclimates of opportunity’,  investment is being channelled into cities and regions, rather than countries. In economies that suffered badly in the recession, such as Spain and Ireland, certain areas are becoming attractive again. In Spain, house prices are still some 30% below their 2007 peak and some half a million homes remain unoccupied, but development has started again in and around Madrid. The fall in Ireland was even more pronounced with houses losing some 50% of their value. House prices rose by 6.4% in 2013, but strip out Dublin and the improvement was negligible.

In China, house prices have risen by as much as 25% in 2013 in first-tier cities such as Beijing, Shanghai, Shenzhen and Guangzhou. A number of measures, such as raising second home deposit levels; boosting the supply of affordable housing; introducing property-taxation; and making it harder for non-residents to buy, have been introduced to cool the market.

Increasing activity in the sector is a strong indicator that the global recovery is gaining momentum, although it would not take much to destabilise these improvements. As cities rather than countries seem to be the focus for investors and businesses alike, this can also mean distorted values in a small area, with the risk of some potential future realignment.

That said, the signs are pointing in the right direction and even countries that have been through a torrid time are beginning to attract investment again. Real estate and construction businesses have been in ‘wait and see’ mode for a long time. But now they need to identify these microclimates of opportunity, incentivise their key people and make sure that the correct controls are in place so that governance issues do not stifle their next phase of growth.

Clare Hartnell is global leader for real & construction at Grant Thornton.