The Significance of Global Market understanding in Real Estate Investment

Although South Africa has its own unique set of problems, it does not exist in a vacuum and, especially in uncertain times like these, a keen understanding of global markets is essential for local investors looking to navigate the current troubled waters as safely as possible.

So says Yael Geffen, CEO of Lew Geffen Sotheby’s International Realty who adds that real estate investment has long been a popular avenue for wealth creation and portfolio diversification, particularly during times of economic uncertainty.

“In an increasingly interconnected world, it is vital for investors to expand their horizons beyond local markets and understand the dynamics of global real estate and how what happens elsewhere in the world will impact locally.”

Geffen lists the following reasons that a greater understanding of the international arena can lead to informed decision-making and enhanced investment opportunities:

Diversification and Risk Mitigation:

Understanding global markets allows investors to diversify their real estate holdings across different geographic regions and property types. By spreading investments across multiple markets, investors can mitigate risks associated with local economic downturns, political instability, or changes in market conditions.

Global diversification enables a more balanced portfolio that can withstand market fluctuations and protect against unexpected events.

Growth Opportunities and Market Trends:

Studying global real estate markets provides valuable insights into emerging trends and growth opportunities. Different regions may experience varying levels of economic development, urbanization, or demographic shifts, leading to different property market dynamics.

By identifying markets with strong growth potential, investors can capitalize on opportunities for capital appreciation and rental income.

Access to International Investors:

Understanding global markets opens doors to a broader network of international investors. Real estate is a global asset class, and cross-border investments can create valuable partnerships and increase access to capital.

Collaborating with foreign investors can bring fresh perspectives, diversified investment strategies, and potential joint ventures, enhancing the overall investment experience and facilitating access to new markets.

Portfolio Optimisation and Performance Enhancement:

Global market knowledge allows investors to optimize their portfolios by strategically allocating capital based on market conditions. By identifying markets with favourable risk-to-reward profiles, investors can achieve higher returns and improved portfolio performance.

Global market insights enable investors to assess opportunities across different property sectors, including residential, commercial, industrial, and hospitality, based on their individual investment goals and risk appetite.

Political and Economic Factors:

International market understanding enables investors to consider political and economic factors that impact real estate markets. Changes in government policies, regulations, tax systems, or geopolitical events can significantly influence property values and investment viability.

By staying informed about these factors, investors can make informed decisions and adapt their strategies to mitigate potential risks or leverage favourable conditions.

“Understanding global markets necessitates in-depth research and due diligence,” says Geffen, “and investors need to familiarise themselves with local market dynamics, legal frameworks, cultural nuances, and economic indicators.

“By collaborating with local experts, such as real estate agents, legal professionals, or market analysts, you can gain invaluable insights into market conditions, property values, rental yields, and potential challenges.

“Thorough due diligence also minimises risks and ensures investors are well-prepared to navigate unfamiliar markets.”

Geffen says that two main global trends that investors should note in the current market is the structural undersupply which is expected to continue in the short term and heightened rental demand in the long term due to ongoing urbanisation.

“Worldwide, the supply of new homes has slowed due to a spike in construction and material costs and most cities are unlikely to deliver the number of homes required to meet the growing demand.

“It’s also very likely that affordability pressures will put homeownership further out of reach of an increasingly large section of society which will underpin continued long-term house price and rental value growth.”