Real Estate - the Easiest Asset Class to Invest In

Investing in local and global real estate is supposed to be easy.

Residential and hotel real estate, for example, is the easiest to invest in because readers can relate to the investment. Afterall, everybody has stayed in a home before, and quite likely you have also stayed in a hotel.

There is little to have to understand - property rental comes in and property expenses go out.

This point of view became particularly pronounced in the 2010s, during the post-Great Recession era, in particular because bank interest rates were so suppressed. Great Recession bailouts and globalisation in general made inflation, interest rates and the general cost of doing business low.

Disruptions in the 2020s

In the 2020s, however, real estate businesses started to see severe impediments to smooth business, alongside the general economy.

We saw inflation skyrocket during covid19 and interest rates keep up to try to keep inflation down. Tariffs and trade wars (alongside the spectre of a full blown war or 2) did not help either.

The unemployment picture remains unclear due to inconsistent data. Whilst technology enabled employment and created jobs to a large extent, the US government lockdown towards the end of last year affected global markets and made it uncertain if employment remains as robust any more.

The effect is it is, in general macroeconomic terms, also unclear what the state of the real estate economy currently is. Absent a convincing and clear position on the state of the global economy, global investors have sought refuge in gold, commodities and big tech.

To elaborate, real estate, suffers in Asia because of declining demographics, and globally because of the work from home and e-commerce phenomenon.

Financially, global real estate is affected by high insurance rates, high taxes and high interest rates. These costs are not easily passed on to the tenants, due to the abovementioned reasons.

Not Investment Advice

Do you agree with the global macroeconomic picture painted above? Do you have experience in the real estate asset class and what are the indicators in the global real estate macroeconomy that you are seeing?

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