Expert view
Peter Hobbs, managing director of IPD, which provides real estate indices and data, says:
“The strong momentum over recent quarters suggests that 2014 will be another stellar year for real estate, the fifth consecutive year of above-average performance since the financial crisis. Although there tends to be a delay before most national markets report their year-end performance, the early results from the UK, the US and particularly Ireland confirm the continued strong performance. The results for Ireland, at 40 per cent for the year as a whole, are staggering and represent the best ever annual performance since the series began 30 years ago.
“Despite this strong performance, increasing concerns are being raised over its sustainability. On the one hand, income returns, that tend to account for the largest component of real estate performance, have fallen sharply, from an annualised 7.7 per cent in the UK at the end of 2009 to 5.9 per cent at the end of 2014, and from 7 per cent to 5.3 per cent in the US between mid-2010 and end 2014. On the other, these yields are down to levels not seen since 2007-08, the prior cyclical peak and a powerful signal of market pricing.
“Many investors take comfort in the relatively low levels of new supply and the still attractive spreads with bond yields, and continue to aggressively bid for real estate assets. But many others are becoming more cautious, exploring opportunities to invest in less favoured and often overseas markets, or deciding to hold back until real estate itself becomes less frenzied.”
KEY POINTS
Property prices
• The national real estate pricing indicator tracks the pricing of national markets based on two simple measures of ‘income return’ and ‘income-bond yield’ spread over each of the past 10 years.
• Most markets became aggressively priced during the 2007-08 peak and corrected in the years of the crisis.
• Over recent years, pricing has become more aggressive, particularly in Canada and the US.
• In spite of the surge in pricing of the UK (values up by 12 per cent in 2014) and, particularly, Ireland (30.7 per cent in 2014), these markets do not seem as aggressively priced as Canada and the US.
Source: IPD
