The new march of money

The new march of moneyThe world’s real estate is currently worth more than 30 times the value of all the gold that has ever been mined, says director of Savills World Research, Yolande Barnes.Savills has recently released Around the world in dollars and cents, a new report which finds the world’s real estate was worth US$217 trillion in 2015 – 2.7 times the value of the world’s GDP.Barnes says the US$6 trillion value of all gold ever mined “pales into insignificance” next to the value of all developed real estate.The analysis measures the entire developed property universe including commercial and residential property as well as forestry and agricultural land. Residential property accounted for 75 per cent of the total value of global property.”The fact that private wealth in particular is tied up in real estate has immense implications for economies. Real estate is one of the biggest drivers of the debt cycle, but the sector is not well-enough understood by the world’s policy makers.”Barnes says she sees the same story in city after city as she travels the world. “The memory of the last bust is so top-of-mind that everyone is fearful that real estate markets are in bubble territory.”People are worried that houses are overpriced, because they look at house price to income ratios. It was inevitable, though, once Baby Boomers paid off their mortgages and started to use this equity to invest, that house prices would become disconnected from incomes.”What is playing out in a lot of the world’s cities is the same story, Barnes says. Real estate prices are on the rise because land is scarce, supply is not as elastic as it could be, immigration is expanding populations and the fashion for inner-city dwelling is creating strong demand.How cities face and embrace these challenges will seal their fates, Barnes says.”All cities have their limits. Sydney’s suburbs have sprawled as far as they can go. Singapore, Hong Kong and New York are restricted by the size of their islands’ footprints. London is limited by its green belt, and Paris by its Périphérique ring road. Even LA has hit its limits because there is only so far people are prepared to drive to get to work.”The future now is not about expansion, but intensification – about how we use the land better.”In creating ‘more’ city, we have to create the ‘same’ city that attracted people in the first place. The difficulty is to build new in a way that creates a place as desirable as the old.”While Sydney and Melbourne remain Australia’s hotspots for investment – and Barnes says “cities with names” will always attract cross-border interest – we can expect to see an “increasing appetite for investment in smaller cities and towns”.Investors are becoming not only “footloose” but also “more adventurous” in the asset classes in which they are willing to invest.Savills’ report finds cross-border activity in real estate has generally grown since the global financial crisis, with the proportion of deals involving buyers from different countries increasing from a low 17 per cent in 2009 to 20 per cent in 2015. Over the same period, cross-border volumes have grown by 334 per cent from $65 billion to $217 billion.”Around the world, we’ve seen a return to the city as people who fled to the suburbs move back to urban environments – unrestricted millennials, empty nesters, those interested in living more sustainably. While that means Sydney and Melbourne will be top tier, there is more to Australia’s urban story that is yet to be written.”Download Around the world in dollars and cents.