The Global Growth Of The Buy To Rent Phenomenon

REAL Trends President, Steve Murray and Chief Foreign Correspondent, Peter Gilmore discuss the global stance on buy to rent. The phenomenon where investors buy residential properties and rent them out instead of occupying the properties themselves. In the United States, this trend has been growing in cities and areas with high tourist traffic and with the ease of platforms like Airbnb the trend is going global. Peter weighs in on the pros and cons and if this phenomenon is here to stay.

Steve Murray

Let’s start with this phenomenon of buy to rent, investors buying residential property and renting it out, it’s going on in the US, but what is happening globally? What’s the extent of this in other areas?

Peter Gilmour

Well it’s pretty extensive, Steve. I think we need to just set the scene by looking at the countries are looked at by investors and the Association of Foreign Investors in Real Estate has recently done a survey. And they rate the top five countries for real estate investment as United States, Germany, Canada, Australia, and Britain. So we’ll talk a little bit about that, but from a town and city point of view, London comes out way on top, but we’re going to be talking about some other areas as well, such as Australia, the UAE, and Singapore, which all provide different opportunities and different nuances.

Certainly it is a worldwide phenomenon, and it differs from country to country. London particularly is a very strong city for investors because of its situation. We find that even with Brexit the investors have not been put off, even though prices have dropped slightly. But there have been exchange advantages as well. But many, many areas in London are providing great investment opportunities with good returns for investors.

But as it happens, one has to look at strategy; one has to look at what is the investment strategy. And exactly what do investors look for and particularly in London, as with many of the other major cities in the world, the access to transport and the city is absolutely key and will determine the return on investment that they make.

So the growing phenomenon is not just people from let’s say Russia, Middle East, Far East, Africa, South America, but part of the phenomenon is people literally just buying residential real estate and looking at it not as a place to live at this time, but rather an opportunity to buy to rent, and they are getting good returns from residential real estate?

Absolutely. And you’re finding that the requirements of the Millennials and younger people are changing. They want to be close to the city; they want to be able to move with relative ease, and that the options of renting provide them with what they are looking for rather than a longterm commitment to purchasing a property.

Which is I’m assuming why the world is seeing a huge growth in some of these major urban areas like you mention, London and Singapore, and I heard you mention the UAE is attracting residential investment. Where is that coming from?

Well the UAE is very interesting because obviously it’s an economic hub. The returns on investment there are very good, somewhere between 6 and 10% on residential properties. And they do a lot to encourage investors; for instance there’s no value-added tax on leases of residential property.

And an interesting fact, that last year in Dubai there were 26,000 transactions from people outside of the UAE representing 149 countries. So I found that to be extremely interesting, that you had people from all over the world coming and looking at investment opportunities in the UAE.

Which is I’m assuming why the world is seeing a huge growth in some of these major urban areas like you mention, London and Singapore, and I heard you mention the UAE is attracting residential investment. Where is that coming from?

Well the UAE is very interesting because obviously it’s an economic hub. The returns on investment there are very good, somewhere between 6 and 10% on residential properties. And they do a lot to encourage investors; for instance there’s no value-added tax on leases of residential property.

And an interesting fact, that last year in Dubai there were 26,000 transactions from people outside of the UAE representing 149 countries. So I found that to be extremely interesting, that you had people from all over the world coming and looking at investment opportunities in the UAE.

One could consider that it’s really lovely, warm country there.

Well perhaps too warm for some. But there’s a big property expo that is scheduled for 2020, which is going to provide opportunities in Dubai for over a quarter of a million new jobs. And this is going to bring an influx of people and expats into the area. And is going to just heighten the demand for rental property because the growth of inventory is certainly not as high.

Peter, in your research and just your general knowledge, you’ve been looking at this a long time, I’ve always imagined in some regards people will buy property in places like Germany, the UK, Canada, the US, because of relative strength of private property rights and relatively stable political systems. In your research, does that seem to have an influence on where people will invest in residential real estate?

Oh absolutely. You know, there are many factors and security is the number-one factor. And that’s why companies like Australia and New Zealand, Britain and certain European countries, are very, very strong with buyers from outside of their particular areas.

Now if one looks at Australia, certainly they’ve had huge investments from the Middle East and China. And it’s because of the stability and the returns that they’re able to get. And the political and economic growth that comes out of those countries.

So security, both the security of the private property, your rights to your property and the ability to rent your property without undue interference from local authorities is a big factor and also just the stability generally of the political system that does encourage people, attract people to make these investments.

Yes absolutely, and we see as well around the world that there are different trends, even within the buy-to-let community. And one of the most interesting things that has come out of Singapore is that the tremendous amount of real estate that is being rented through Airbnb, which one doesn’t necessarily think of. Many of the local Singaporeans are looking to rent through Airbnb because it doesn’t commit them for a great length of time. And this is something which is on the minds of every investor, are they going to do a longterm let, are they going to do a short-term let, or are they doing a medium-term let in the off season and when tourists are in the city are they going to short-term lets? And that comes with its problems obviously because of increased costs and maintenance on short-term lets. But the stability of the longterm let is still very, very important.

Interesting as well in Singapore is that there’s a tremendous trend, culturally, for single people to remain with their parents for a much longer time than perhaps we see in some other countries around the world. And it’s also, there’s a restriction on their public housing that if you’re not married and under 35 years of age, you really can’t qualify for their public housing. So people who are married and under 35 years, they really have to rent because the properties are very, very expensive, and they’re looking not only at individual condominium rentals but Airbnb rentals.

So we have a global economy; China, Europe, Australia, Japan, India; South America’s coming back; the US and Canada are both strong. The whole world at the moment, most economies are doing quite well and the creation of prosperity is giving people the opportunity to invest outside of where they live kind of as, I guess you’d call it diversification.

Absolutely. And the world is getting smaller. Opportunities are being provided and I think the opportunity that I’ve mentioned in Dubai is one of those. For people who are mobile and have the opportunity to travel, the two or three year opportunity that the Expo 2020 provides is a great opportunity. And we see people from Africa; we see people from Australia. And the UAE has become a hub of expats. As has Singapore, where you have a tremendous population in a very, very stable economy, one of the top cities in the world to live. A tremendous opportunity for young people to grow and to become part of a world economy, particularly coming out of perhaps Third World countries where the opportunities are not as good.

Well Peter this has been fascinating. I’m sure listeners are gonna wanna to hear about this. And then you hook that in to the accessibility of global portals, with all kinds of property information available now to anyone, anywhere in the world, I mean I guess you combine those two factors, the world is getting smaller. I mean you can examine markets anywhere from your mobile device of any kind at any time and see what’s available and the prices and rental terms, et cetera. I guess that also includes using Airbnb to figure out some of those metrics. Fascinating.

Well, the world is global and becoming more so. Real estate is global and becoming more so. And I believe we’re going to see lots of changes on the positive side in the next two years that will even change what we are talking about today, dramatically.

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