Expectations for higher deal valuations are at the highest level they have been in recent years according to the EY study - Global Capital Confidence Barometer. The valuation gap between real estate buyers and sellers has narrowed quite dramatically and it is expected to shrink further in the next 12 months, suggesting greater deal velocity is possible later this year.
“46% of respondents expect prices to rise in the next year, compared to 37% in April 2012. With pricing clearly believed to be on an upward path, buyers might have a limited amount of time to lock in the best deals.” says Michael Fishbin, EY Global Hospitality Leader.
Moreover, real estate executives are far more confident about the global economy than they were just six months ago, according to the same EY study. The report, which surveyed 117 senior executives from real estate, hospitality and construction (RHC) companies around the world, found there is increased optimism about the global economy. Eighty-five percent of those surveyed said the global economy is improving or stable – a 20% increase in the six months between October 2012 and April 2013.
Respondents were also more positive about employment growth (48% vs. 28%), corporate earnings (49% vs. 22%) and, most dramatically, credit availability (51% vs. 18%). This last fundamental is typically critical to real estate because of the industry’s dependence on financing.
"Even if sometimes cautious, the obvious optimism our study showed suggests that the real estate environment has become more stable for transactions, which was also seen in the optimistic note Romania started off this year. Yet, active investors are still interested to buy high standard properties at prices below the market.", says Horiana Istodor, Senior Manager within Valuation and Business Modeling department at EY Romania.
Investment destinations continue to evolve as companies challenge their growth strategies and underlying risk tolerance. Of the top five markets identified for capital deployment, four – India, China, Qatar and Chile – are emerging markets exhibiting strong growth potential and higher risk. The fifth market – Canada – witnessed solid economic growth in the last few years and weathered the global financial crisis better than most. Notably absent from the preferred list of markets are European nations. Germany is the highest ranked – at #15. This suggests ongoing concern among real estate investors in the overall stability and short-term trajectory of the Eurozone economies.
Global real estate transaction volume totaled USD 214bn in Q1 2013, up 23% from last year. The increase was across all property types. Across the global regions, EMEA (Europe, Middle East and Africa) results were the weakest, while transaction volumes in Asia were up 31% from last year. Impressively, China and the US accounted for approximately 63% of the total transaction volume. Reffering strictly to the US, inventories of new and existing homes remain historically low and that’s helping to push up prices.
About the study
The Global Capital Confidence Barometer is a periodic survey of senior executives from companies around the world, conducted by the Economist Intelligence Unit (EIU). Our panel consists of select EY clients and contacts, and regular EIU contributors. This edition of our study specifically focused on the 117 respondents from real estate, hospitality and construction companies.
About EY Romania.
EY is one of the world's leading professional services firms with approximately 167,000 employees in 700 offices across 140 countries, and revenues of approximately $24.4 billion in 2012. Our network is the most integrated at global level and its vast resources allow us to help our clients benefit from every opportunity. In Romania, EY has been a leader on the professional services market since its set up in 1992. Our over 450 employees in Romania and Moldova provide seamless assurance, tax, transactions, and advisory services to clients ranging from multinationals to local companies. Our offices are based in Bucharest, Cluj-Napoca, Timisoara, Iasi and Chisinau. From 1 July 2013, Ernst & Young becomes EY, the logo has been modified in response to this change and the company's new tagline becomes "Building a better working world". The new visual identity reflects the new strategy of EY, Vision 2020. For more information, please visit www.ey.com.