The impact of global trends on local Real Estate

In just a few years, the world has been transformed by advances in information, telecommunications and transport technology into a borderless global village in which geography, distances and national borders are no longer of great significance. One of the most powerful forces shaping modern history; namely globalisation, has resulted in the rapid internationalisation in the movement of information, money, goods and people. Multinational companies with operations in countries around the world are no longer exceptions, information reaches every corner of the globe in an instant, people travel to previously isolated areas within hours and yet stay in touch with friends and family at home, and immigration and emigration are daily realities at every border.

This globalised world is characterised by significant cross-border and international co-operation by the vast majority of countries. The EU, NAFTA and our own SADC are but a few examples of trading blocs, economic customs and monetary unions that dominate the global economic landscape.

In this globalised economy, one economic giant dominates: the US, which accounts for a staggering 25% of the world’s GDP. Because the US tends to be at or the near the top of many countries’ list of biggest trading and investment partners, many economies rely on the spending habits of the American consumer. Any change in these consumer habits sends a ripple effect throughout the world.

As a result, the fortunes of many other countries are intricately tied to the fortunes of the US. This is particularly true of the UK, which is closely tied to the US through trade and investment links that represents a third of the UK's income from abroad. As early as the 1930, the adage: ‘When America sneezes, the world catches cold’, was coined, referring to the Great Depression that swept the globe following the Wall Street Crash of 1929.

The recent subprime crisis clearly illustrated that this old adage still holds true today, and perhaps more so in a global financial system that is increasingly interconnected. Thousands of miles away, the UK and other European economies were rocked by unwise lending decisions in the US – a practice called ‘subprime lending’. The effects of the subprime crisis reverberated around the world, leaving no economy unaffected and causing the greatest global recession since the 1930’s. The US Federal Bank slashed interest rates and as usual, the rest of the world followed suit. Governments were forced to step in with rescue packages for the banks, and tighter financial regulations in economies around the world followed. The effect on the global property market has been well-documented over the last few years.

As is patently clear from the subprime crisis, property markets around the world are not immune to the realities of globalisation. In fact, as globalisation gains momentum, countries are removing barriers to entry in terms of foreign ownership of property and are developing the legal and professional infrastructure needed to attract property buyers and investors. Global real estate standards are being adopted and methodologies, valuation techniques, tax laws and treaties, limited liability structures and models to invest in or acquire properties in various countries are being standardised to facilitate access to these local property markets.

Among the most significant buyers of real estate are the multinational companies taking advantage of the opportunities globalisation and access to local property markets have opened. These giant corporations are acquiring property for manufacturing plants and production facilities, call centres and back-offices, satellite offices and branches, as well as R&D centres.

In addition, the mobility and internationalisation of the labour force has also seen the rise of a mobile expatriate population, serviced by proactive property companies who are either opening branches throughout the globe or forging alliances with local companies to provide relocation services and worldwide access to residential markets.

The positive economic spin-offs of these foreign investments in developing countries have created further impetus for the growth of the local middle classes, which has resulted in a boost for the local property markets.

Cross-border investments in real estate, international development projects, multinational real estate ventures in offshore real estate markets, particularly in the developing world, have also impacted local property markets. In addition, emerging economic giants such as China are acquiring vast tracts of land in Africa, among others, as they search for agricultural land and resources to fuel their growing economies and global positions. Similarly, less direct forms of property investment offshore is being driven by new financial instruments which allow foreign investors to invest in real estate in countries previously considered inaccessible.

Even in respect of regulation and industry standards, globalisation has played a significant role. ARELLO - the Association of Real Estate License Law Officials - comprises of official governmental agencies and other organisations around the world that regulate real estate practice and enforce real estate law, driving international real estate regulatory developments and best practices.

Estate agents are increasingly part of a globalised real estate industry through bodies such as the International Consortium of Real Estate Associations (ICREA), which sets standards for international real estate practice and facilitates worldwide real estate transactions, and the International Real Estate Federation (FIABCI), a business club of real estate professionals in 60 countries and a federation of 100 national real estate associations.

The technology advancements that drive globalisation – such as the availability of direct and increasingly affordable flights, the ability to arrange mortgages from abroad quickly and easily, and general advancement in telecommunications that allow, for example, instant communication with buyers and sellers on the other side of the planet and virtual tours of properties thousands of miles away – as well as the existence of international real estate agencies operating locally, means that the South African property market is not isolated from the rest of the world, despite its relatively remote location at the southern tip of Africa. In fact, recent developments enhanced by technology – such as the broadcasting of the Soccer World Cup live to billions of viewers across the world – have firmly placed our local property market on the radar screens of foreign homebuyers and global investors.

“As these technological advances continue to accelerate, we can expect global trends to have an increasingly tangible impact on the local economy and the local property market,” says Gilmour. “Acquiring the services and expertise of estate agents with strong international links and global resources will become ever-more important as the global village becomes smaller, and as global trends become an increasingly important factor in the local market, both for those looking to buy or sell property locally, and those who have set their sights on distant shores,” he concludes.

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