2013-10-04

Residential real estate markets benefit from risk aversion and low interest rate policy

Institutional investors in Europe are becoming increasingly interested in residential real estate. In the first six months of this year, the transaction volume rose by 34 percent year-on-year to EUR 12.9 billion, with the "safe haven" of Germany proving to be a particularly popular investment target. This is one of the findings of the fifth Residential Market Report Europe published by PATRIZIA Immobilien AG. "The sovereign debt crisis and the long-standing uncertainty about the future of the eurozone have strengthened the risk aversion of many institutional and private investors," comments Dr. Marcus Cieleback, Group Head of Research at PATRIZIA Immobilien AG. He added that the lack of strong yield alternatives on the capital market is contributing to the high demand for residential real estate investments, while the low interest rate policy of the European Central Bank is having the effect that many conservative forms of investment are generating only low yields after adjustment for inflation. "In this environment, residential real estate offers comparatively high yields with a manageable risk," Cieleback notes.

The findings of the fifth PATRIZIA Residential Market Report Europe at a glance:

Low investment risks in Germany, Austria and Finland

The residential real estate markets in these three countries have had the lowest investment risks over the last twelve years. At the same time, total yields have risen by 100 basis points in the last three years, whereas they have decreased in the rest of Europe.

Residential market influenced by age structure of the population

In addition to a country's population growth, the residential market is influenced by the proportion of the population that is over the age of 65. On average, these people buy fewer homes than younger people. Since 2000, house prices have risen more slowly in countries where the number of senior citizens as a proportion of the total population has also increased. In Germany, house prices have seen average growth of just seven percent since 2000, while the ratio of older to younger people has risen more sharply than anywhere else in Europe.

Construction activity returns to normal throughout Europe

Six years after the start of the financial and economic crisis, the consequences for the European real estate markets are still visible - but they are becoming weaker. Construction activity is returning to normal and enjoying stable development in most countries. This indicates that construction activity is reflecting the additional annual demand for homes.

Growing activity among international investors

The sustained high level of interest in residential real estate among institutional investors is increasing the transaction volume, with cross-border investments in particular seeing growth over the past twelve months.

Investment decisions influenced by the 2011 census

The new information on population numbers in Germany combined with the new assessment of the number and condition of buildings is leading to revaluations for institutional investors in many regions. In Germany as a whole, there are around 500,000 more residential buildings than previously estimated. In terms of the individual federal states, Schleswig-Holstein has around eight percent more residential properties than had previously been assumed, followed by Lower Saxony at around seven percent and Hesse at six percent.

High-yield residential properties in the United Kingdom and Scandinavia

Real estate investments in Denmark, Finland and Sweden are suitable for portfolio diversification despite currency fluctuations. British residential real estate is a good fit for portfolios with different asset classes, as it offers high yields compared with the risks incurred. The average annual yield for residential real estate in the United Kingdom over the past 30 years is 13 percent.

The complete PATRIZIA European Residential Market Report 2013/2014 you find here.

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