The Growing Appetite for Foreign Real Estate
In Italy, over the last two years real estate transactions have decreased and the tax burden has grown heavier. Is real estate investment moving abroad? In order to answer this question, let's start with two snapshots: the number of residential real estate transactions made abroad by Italian households, which is in excess of 42,000, with a +6,3% growth with respect to the previous year (data from Scenari Immobiliari); and the news of the acquisition of an office building in Helsinki by Axa Real Estate on behalf of an Italian investment fund. The first piece of data concerns residential purchases by small private investors, the second refers to corporate investments. Their underlying logic and risk-to-return correlations are different, although a common denominator is the growing interest in foreign real estate.
In order to assess this trend, we have to keep in mind that in the former case the share of acquisitions for investment is less than 50% of total real estate transactions. A small private investor eyes a low-risk asset class which has prospects of capital gain when the home or building will be sold, and thus he/she targets foreign real estate that has good chances of appreciation.
It is however necessary to consider that foreign investment is more complex than domestic investment from a management point of view, because of the distance involved and the different legal and tax norms in force. The decision to purchase should also be unaffected by seemingly attractive exchange rates, but rather based on careful analysis that takes into account the different political and economic cycles of various real estate markets.
For instance, London attracts real estate investors because of its growing strategic importance and the improving macroeconomic prospects of the United Kingdom. Residential prices have grown by +7% in 2013, a positive trend started in 2010, which puts real estate prices at +13% with respect to pre-crisis levels. In New York, prices have started to grow again in 2013 (+3,8%), after six years of consecutive drops, while in Paris real estate is at +9% with respect to 2008, but weaker macroeconomic conditions in France have determined slower recovery and a decrease in real estate prices in 2013 (-1,3%; data from Hamptons Research).
Concerning the second case (buying office space in Helsinki), we are dealing with an institutional investor, which is diversifying its asset portfolio with quality foreign real estate. Nordic countries (Sweden, Norway, Finland) rank 4th in the international ranking of corporate investment attractiveness (11% of total investment in 2013), preceded by France (12%), Germany (21%), and Great Britain (37,5%; data from Nomisma). However, looking at investment choices made by funds surveyed by Assogestioni, one notices that corporate investment in foreign real estate has accounted for only 3% of the total.
In the light of these elements, one can conclude that foreign real estate is increasingly attractive for those who want to diversify asset investment. The slowdown in the domestic market, rather than causing investors to flee abroad, has led to the necessity of adopting a glocal view, in order to seize the best opportunities available on the market.