Notes International Real Estate Markets
LECTURE 1.1 Introduction to international real estate markets
Characteristics of real estate as an asset class
1. high value → out of reach for small investors, can’t invest small amounts (only in a share
in real estate funds)
2. illiquid → high transaction cost (for example broker fees, transaction tax). A searching &
matching process on the market. Stocks and bonds are liquid, you can sell them fast.
3. heterogeneous → there aren’t the same buildings, this implies a high information cost
about for example the prospects, tenant, risks, defaults.
4. dual characteristics → combination of a consumption good (user space) and investment
vehicle.
Global asset market and local space market. Real estate is approachable for investors
abroad, but because properties are fixed in location, so it belongs to the local space market.
You have users of space that can be different of the owner of the asset. As can be seen in
the table above, the owners of the properties are foreign investors like Germany and China.
Although the property is located in the local market in Amsterdam, its available for the
global market.
Left are the owners. Right are the users. The majority is red (NL), but there are also
internationals who are the users of the properties. So some properties are invested and
consumed by internationals.
,Real estate market has cycles, in a different part of cycle, the behavior is different. The blue
line is the price, orange the sales volume. The sales volume is indicating the future price
trend. When the price is going down, first the sales volume goes down. That’s overpricing,
the transaction volume will go down first. The prices are sticky and stay high for a while, but
then they realize its going down, there is a turning point and then the prices go down. The
price follows the sales volume. The sales volume is an indicator of the prices of real estate.
We expect the trend for 2020 downward sloping. This is not a cycle, but they went down
after 2008 the crisis and after 2014 recovers again. It shows the trends and dynamics in
markets.
,Real estate is characterized by a high value, so it is not accessible for small investors. That
refers to direct real estate investment, which means that you buy 1 piece of real estate. But
for indirect real estate it’s still possible. You can put a little amount of money into a fund, the
fund collects all the money and buys real estate. There are different ways to get money into
real estate. Direct = acquisition of a piece of real estate. Indirect = exposure to real estate
through funds.
The pie shows that CBRE is about the biggest investor, they invest in behalf of investors. The
assets are globally distributed according to the pie.
Indirect real estate investment: you can buy into funds (like CBRE) but you can also go into a
private equity funds what is more demanding. That mostly of a limited number of wealthy
individuals/companies. There’s a duration of the fund until a date is existing, after that is
stops and they get interest. Funding of funds. Yellow is fund raising of funds with investors of
all over the world. It’s billions, not millions. There is a lot at stake on global scale. The gray
bar are the actual deals. Yellow is how much money they collect from participants. Gray how
they invest it. There’s a discrepancy from time to time depending on the market between
fund raised and spend which depends on the competitiveness in the market. When
everybody is active, there is much fund, not that much real estate available.
, There are bigger markets, smaller markets. The market size and scope are very different in
international real estate markets (asia, uma ect).
There is also allocation into different sectors. In US the most investment goes offices for
example, but development site is in non US the most interesting. This can all change (for
example because of covid).
LECTURE 1.1 Introduction to international real estate markets
Characteristics of real estate as an asset class
1. high value → out of reach for small investors, can’t invest small amounts (only in a share
in real estate funds)
2. illiquid → high transaction cost (for example broker fees, transaction tax). A searching &
matching process on the market. Stocks and bonds are liquid, you can sell them fast.
3. heterogeneous → there aren’t the same buildings, this implies a high information cost
about for example the prospects, tenant, risks, defaults.
4. dual characteristics → combination of a consumption good (user space) and investment
vehicle.
Global asset market and local space market. Real estate is approachable for investors
abroad, but because properties are fixed in location, so it belongs to the local space market.
You have users of space that can be different of the owner of the asset. As can be seen in
the table above, the owners of the properties are foreign investors like Germany and China.
Although the property is located in the local market in Amsterdam, its available for the
global market.
Left are the owners. Right are the users. The majority is red (NL), but there are also
internationals who are the users of the properties. So some properties are invested and
consumed by internationals.
,Real estate market has cycles, in a different part of cycle, the behavior is different. The blue
line is the price, orange the sales volume. The sales volume is indicating the future price
trend. When the price is going down, first the sales volume goes down. That’s overpricing,
the transaction volume will go down first. The prices are sticky and stay high for a while, but
then they realize its going down, there is a turning point and then the prices go down. The
price follows the sales volume. The sales volume is an indicator of the prices of real estate.
We expect the trend for 2020 downward sloping. This is not a cycle, but they went down
after 2008 the crisis and after 2014 recovers again. It shows the trends and dynamics in
markets.
,Real estate is characterized by a high value, so it is not accessible for small investors. That
refers to direct real estate investment, which means that you buy 1 piece of real estate. But
for indirect real estate it’s still possible. You can put a little amount of money into a fund, the
fund collects all the money and buys real estate. There are different ways to get money into
real estate. Direct = acquisition of a piece of real estate. Indirect = exposure to real estate
through funds.
The pie shows that CBRE is about the biggest investor, they invest in behalf of investors. The
assets are globally distributed according to the pie.
Indirect real estate investment: you can buy into funds (like CBRE) but you can also go into a
private equity funds what is more demanding. That mostly of a limited number of wealthy
individuals/companies. There’s a duration of the fund until a date is existing, after that is
stops and they get interest. Funding of funds. Yellow is fund raising of funds with investors of
all over the world. It’s billions, not millions. There is a lot at stake on global scale. The gray
bar are the actual deals. Yellow is how much money they collect from participants. Gray how
they invest it. There’s a discrepancy from time to time depending on the market between
fund raised and spend which depends on the competitiveness in the market. When
everybody is active, there is much fund, not that much real estate available.
, There are bigger markets, smaller markets. The market size and scope are very different in
international real estate markets (asia, uma ect).
There is also allocation into different sectors. In US the most investment goes offices for
example, but development site is in non US the most interesting. This can all change (for
example because of covid).
