Global real estate market an esteemed alternative for SA investors

The local real estate market in South Africa has been facing challenges amid a strained economic backdrop, leaving investors seeking alternative opportunities. One such avenue gaining traction is the global real estate market, which has demonstrated significant outperformance compared to South African equities, bonds, and listed property. Investors are increasingly turning to developed market economies for healthy growth prospects and diversification from the uncertainties plaguing the South African property sector. Fairtree Property Portfolio Managers, Rob Hart, and Ryan Cloete, shed light on the appeal and performance of the global real estate market during an interview with CNBC Africa. The global real estate market predominantly comprises around 50% in the US, 20% in the UK and Europe, and 30% in Asia including Australia. This focus on developed markets aims to provide South African investors with an opportunity to diversify their risk exposure and gain access to potentially more stable and lucrative markets. The strategy involves a top-down investment approach, analyzing regions, sectors, and specific stocks to make informed investment decisions. One of the key aspects of their investment strategy is to underweight European markets due to various challenges, including weak economic indicators and political uncertainties such as Brexit. The UK, in particular, has faced turbulence in its property market, with oversupply in office spaces and the rise of online retail posing threats to traditional brick-and-mortar establishments. While retail and office sectors in the UK may face challenges, there are opportunities in non-traditional sectors like self-storage and industrials, which are less dependent on GDP growth and Brexit outcomes. Addressing the impact of interest rates on property investments, the managers highlighted the significant role that interest rates play in property performance. Lower interest rates generally boost property investments by lowering mortgage rates and increasing demand for real estate. The recent shift towards a less hawkish stance by central banks, particularly in the US, has benefited property stocks, leading to positive returns in the global property index. The expectation of potential interest rate cuts further bolsters the outlook for property investments moving forward. While interest rates are a crucial factor, the managers emphasized the importance of considering GDP growth as a key driver for real estate performance. Their analysis suggests that real estate is more closely correlated with GDP growth than interest rates, indicating that robust economic growth can offset the negative impact of rising interest rates. In conclusion, the global real estate market presents a promising opportunity for South African investors seeking to diversify their portfolios and capitalize on the growth potential of developed market economies. By strategically navigating regions, sectors, and market conditions, investors can position themselves to benefit from the outperformance of global real estate investments amid challenging times in the local property market.