Glocalization hits home
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For a select few real estate markets, â€ślocation, location, locationâ€ť is taking on a new meaning. Price is no longer a block by block or neighborhood by neighborhood consideration. There is,Â says James Surowiecki, an emerging global market for real estate. The case study is Vancouver, which has the median income of Reno but the costly property prices of San Francisco:
Sothebyâ€™s examined more than twelve hundred luxury-home sales in Vancouver in the first half of 2013 and found that foreign buyers accounted for nearly half of sales. In Miami, a huge influx of money from Latin America has enabled the cityâ€™s housing market to recover from the bursting of the housing bubble, and has set off a condo-construction spree. Australia has become a prime market for Chinese investors, who Credit Suisse estimates will buy forty-four billion dollarsâ€™ worth of real estate there in the next seven years.
These locations are what Surowiecki, quoting urban planner Andy Yan, calls â€śhedge citiesâ€ť. Legal, political, and social stability are extremely high. Foreign buyers who can afford to are ready to pay what to locals seem like frothy prices. The calculation is simple: itâ€™s better to lose some of your principal on a condo in a Vancouver housing bubble than to lose everything in a coup.
Yanâ€™s thesis is backed up by research showing that London property prices are directly correlated with overseas political turmoil. The FTâ€™sÂ James Pickford and Kate AllenÂ write that the â€śphenomenon operates independently within small zones of the city and across a range of income levelsâ€ť. Unrest in a country, like Pakistan for instance, boosts house prices in neighborhoods with a high density of Pakistani residents. The effect is most obvious in very expensive sections of central London, but it exists in more moderately priced areas as well. Stability isnâ€™t the only thing people will pay for: real estate in Mecca around the Grand Mosque goes forÂ $18,000 a square foot, compared to the Monaco average of $4,400.
The WSJâ€™s Jason ChowÂ reports that wealthy Chinese investors arenâ€™t sticking solely to residential properties around the world. Theyâ€™re getting into the commercial real estate game, too. Chow, citing a CBRE report, points out that in the first quarter, Chinese investment in international commercial real estate increased 54% year-over-year to $1.4 billion. 39% of that investment came from private individuals. Chinese institutions accounted for 31%.
Izabella KaminskaÂ looks at the cranes in the sky and the data being collected to conclude that we are in â€śa brave new commoditised real estate world in which generic flats have become equal to gold, property developers the equivalent of gold miners, and London the Klondike territoryâ€ť. Residents of Vancouver might relate to that. â€”Â Ben Walsh
On to todayâ€™s links:
The FOMC minutes -Â Federal Reserve
Kocherlakota says the Fed will keep missing its inflation target until 2018 -Â WSJ
Bernanke to the Fed balance sheet: you’re perfect just the way you are -Â Reuters