Real Estate news – Rich investors vote for real estate

Next we'll invest in prime property, say world's wealthiest in survey of high net worth individuals.

Demand is set to rise for prime real estate, as the world's high net worth individuals opt for safe havens.

That's the message contained in a report released by Barclays Wealth, a global wealth manager that offers its clients banking and investment products and is part of the Barclays Group.

The report was commissioned by Barclays and written by the Economist Intelligence Unit following a survey of more than 2 100 individuals around the world and interviews with economists, senior executives and others.

Key findings include that, although stock markets around the world rebounded between March and May 2009, there is still an aversion to equities.

What's more, many wealthy individuals plan to make no adjustments at all to their portfolios over the next year.

More than half of investors agree, said the report, that in the current environment they will only invest in what they know.

"Where respondents are seeking greater exposure to specific assets, it tends to be to the most ‘straightforward', with real estate, cash, government bonds and domestic equities the most likely beneficiaries of increased allocation," it says.

Real estate tops that list.

The reasons for wealthier individuals citing property and cash over other assets are obvious. Aside from the global market crisis, reports are emerging with increasing frequency of the wealthy fleecing the wealthy through clever schemes.

Last year Bernie Madoff sent shock waves through New York high society. This year the name "Barry Tannenbaum" has become a dirty word in South Africa after he allegedly duped highflying business players like former Pick ‘n Pay CEO Sean Summers, costing them millions.

The Tannenbaum news is quickly being overtaken by developments involving cricketing business legend Sir Allen Stanford, who handed himself in after being accused of billions of dollars worth of fraud.

Property, unlike other many other investments, is transparent and more straightforward. And these days even high net worth individuals, says the Barclays Wealth report, are "seeking the comfort of simplicity and familiarity".

The report doesn't include South Africa as a country in its list of results; nevertheless in this era of globalisation it gives a good snapshot about investment sentiment among the world's wealthiest people.

And, the Barclays Wealth survey lends weight to recent reports that property sales are better-than-expected in some prime South African locations.

In a market commentary published on Realestateweb, the Pam Golding Property Group reveals surpassing its sales figure for May by 25% in Cape Town metropolitan areas.

Both the PGP group and Kaapstadt International Properties reveal particularly strong sales figures for the City Bowl.

The Atlantic Seaboard and V&A Waterfront properties have also been singled out for special mention.

The Waterfront in particular is known for its pricey apartments: there are two flats on that market for about R100m - which is possibly achievable considering a third in the same building was snapped up for about R115m about 18 months ago.

Elsewhere in the country, estate agents and property brokers tell a similar story. Also this week for example, property sellers bragged about doing a roaring trade at Zimbali in KwaZulu-Natal (read Property buyers can't get enough of Zimbali).

However, the market is unlikely to turn dramatically for the better any time soon.

As the Barclays Wealth report notes: "It is clear that there is still a long way to go before we see a sustained economic recovery. The scale of the imbalances to be absorbed remain significant."

In South Africa, the real estate market in general doesn't show signs of brightening this year.

It is certainly depressed enough for the doyen of upmarket residential sales, Lew Geffen of Sotheby's International Realty, to turn to the auction business. Like other estate agency operators, he presumably sees auctions as a way to shore up his overall business in the current recession in which many buyers are looking for bargains from distressed sellers.

Although we can expect another 0,5% to 1% to be shaved off the interest rate - over-and-above the massive cuts since December - property volumes and prices are, still unlikely to turn the corner this year. By mid- to late 2010, the theory goes, interest rates will start ticking up again.

It might seem remarkable that for once falling interest rates have failed to stimulate the property market. Perhaps it serves as confirmation to you that the mid-2000s property boom was more of a bubble.

However, the Barclays Wealth report points to investment behaviour that should be as widely reported as "irrational exuberance" but is not.

It says: "We are, rightly, fascinated by why investors will place exorbitant values on tulip bulbs or shaky dotcom companies - and then make these mistakes time and again. What gets discussed less widely is how there is a mirror image of ‘irrational exuberance' during a downturn, when investors can overestimate, rather than underestimate, risk and let their recent experience of falling markets cloud their assessment of future opportunities."

Just as during a boom, investors can mistakenly extrapolate a trend of rising prices, says the report, "so in a downturn they can expect a continuation of falling prices - only to delay re-entering the market and find that they have missed the turn in the cycle".

Only time will tell whether we are likely to experience a double-dip recession, or worse, or whether we are about to turn the corner.

*Jackie Cameron is editor of Realestateweb - South Africa's fastest-growing property news site.

Barclays Wealth survey snapshot: The rich says they will allocate more money to real estate

Article from: Jackie Cameron - www.realestateweb.co.za