The return of bankers' bonuses has given real estate agents renewed hope for the housing market in 2010. Globally, prices for both commercial and residential real estate bottomed out in the third quarter of 2009 and since then both have recovered. But it is commercial property that is the star performer. In the UK, London retail property prices have jumped almost one-third in that period, more than three times the increase in house prices. In Hong Kong, commercial prices have grown about one-tenth compared with minimal house price growth, according to Grosvenor, the property group.
Growth in commercial prices has been driven largely by equity market gains and rising business confidence. Furthermore, Grosvenor notes that rock bottom interest rates – negative on a real basis – have led some investors to substitute fixed-income holdings with prime real estate. Indeed, where a building is let with a long-term lease and secure tenants, an investment can take the shape of a bond.
Meanwhile, residential prices are still at the mercy of unemployment and lending criteria, both of which remain tight. Whereas obtaining a loan on a multiple of 6 times income was easy only three years ago, now banks hand over little more than the historical norm of about 3.5 times.