Global property returns in 2014 suggest how negative interest rates or rates close to zero have the potential of creating another bubble with Dublin topping total returns at 44.7% from 25 countries.
MSCI's IPD Global Annual Property Index had a 9.9% return based on local currencies last year across all three traditional commercial real estate sectors and the residential sector. The industrial sector at 13.6%, was the best performing sector, ahead of retail (10.1%)— the best performance since 2007 and the fifth straight year of rising returns.
The IPD Global Annual Property Index measures the combined performance of real estate markets in 25 countries together worth an estimated $1.5tn as at end 2014. The index is based on the IPD indexes for Australia, Austria, Belgium, Canada, Czech Republic, Denmark, France, Germany, Hungary, Ireland, Italy, Japan, Korea, Netherlands, New Zealand, Norway, Poland, Portugal, South Africa, Spain, Sweden, Switzerland, UK, US and the KTI index for Finland.
Peter Hobbs, research managing director at MSCI, said Wednesday that the main reason for the jump in property prices is “exceptionally low” bond yields, which has triggered a "buying frenzy." He added that: “Most global markets are at or close to historic low [yield] levels”— rentals as a ratio of the property value.
European quantitative easing is expected to make 2015 another strong year. “QE is sucking in real estate capital because debt finance is so cheap,” Hobbs said.
The total return for Ireland in euros was 40.1% in 2014 — also at the top of the 25 countries — and the 5-year return was an annualised 9.2%.
The US return was 11.2% and the UK return was 17.8%.
Global equities rose 10.4% in 2014 while listed real estate jumped 19.5%.
See table here.
Global investors fear bond/ share bubbles as Faust stalks euro debtors' paradise
Last week The Irish Times warned of a bubble in the Dublin market: "The increasing imbalance between demand for and supply of quality office space, which is pushing up rental costs, is unlikely to change much, at least in the short-term. There is little new supply coming on stream, as construction activity remains depressed. And there is very little vacant accommodation now available to rent. The domestic banks between 2004 and 2008 were the main sources of funding for the commercial property market. But they no longer perform that role...Foreign institutional investors, such as Blackstone and Kennedy Wilson, have acquired some valuable property assets in key locations, from which they have profited, while the establishment of real estate investment trusts (REITs) - which enable individuals to invest in commercial property via the stock market - has helped to broaden the property market. However, with commercial rents in prime locations rising rapidly, but with little new construction under way to meet increased demand, the risk remains of a rapid escalation in commercial property prices."