2016 has started in a very turbulent and negative way for most holders of public stocks. Values of portfolio’s are down in most key markets and the turmoil looks likely to continue. Emerging market currencies are weakening and global investors capital flight to safety increases, the most obvious being the strengthening USD. Returns are hard to come by and even safety is hard to find, as some banks are now charging negative interest rates to customers.
The negative cash rate club is growing, and there are some banks even considering charging customers to deposit their money! what??!. The economist lists bank deposit in the following countries as follows:
- Japan -0.2%
- Euro Area -0.3%
- Denmark -0.6%
- Switzerland -0.7%
- Sweden -1.1%
In the corresponding markets where stocks have crashed, real estate has not suffered anywhere near as much pain and pending investment project, has continued without loss of any value. That’s why are all about real estate investing. In times of turbulence investors are seeking stability, capital preservation and many hoping to just “not lose any money”, so if you are swedish you should really consider leaving your money at the bank now.
We have received numerous questions on the topic of “Where should we be investing now and for the rest of 2016????” and it will again depend on your appetite for risk and comfort level with the locality of the investment project and the type of investment it is. We assume everyone who asks us is asking about real estate, and with that in mind, here are our thoughts and hit predictions for 2016. In the following key global markets we still see good opportunities as follows:
We see a drastic and dramatic debt funding gap opening up as banks are pulling back from most development project lending and drastically reducing the loan to value ratio’s required by project owners. All this leads to equity and junior debt gaps that need to be filled by alternative capital sources. There was a large commercial development project in Sydney, that was paying 13% interest in a senior/first place mortgage and the project had completed 100% of its pre sales but the banks simply don’t have the capital or did not want to lend. 13% senior financing is a position we would take ant day of the week on the right project and location. There will be increasing demand for equity and mezzanine/junior/bridge debt, meaning returns here should increase.
Los Angeles/San Fransisco
Returns across the board are now being squeezed as prices have soared in the last few years. Private debt is abundant and returning high single digits or low double digits pending project. There is an entirely new debt funding source being created by the crowdfunding and fintech industries, it is transformational. From developers there is always a demand for equity financing for good projects, and here we are seeing 15-25% IRR’s, if investors can get comfortable with the location, developer and projections.
There are still some very attractive equity returns available in small scale residential developments 15-30% IRR. Debt offerings seem to be paying much less attractive returns on most projects 8-12% annual interest. Existing commercial deals are offering low single digit returns and investors might look at other asset classes that are still going strong, student accommodation in particular continues to do well.
InvestaCrowd only focuses on key global gateway cities and in core locations within these cities with AAA grade developer partners. Our current pipeline of projects are focused on the following:
- Residential and student accommodation equity projects with target 20-30% IRR
- Residential and commercial debt with 8-16% annual interest rates
Most interesting fintech news and blogs we like from around the globe this week
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The below indicator again shows USD v AUD over the past 2 year period, if you are holding USD now and looking at Australian real estate, there could be a big upswing on currency appreciation by the time you are exciting your investments, increasing the returns.
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InvestaCrowd is a global real estate crowdfunding platform headquartered in Singapore, deals on InvestaCrowd are exclusively available to our members only. Their are limited investment positions in each deal, and investments are offered on a first come first serve basis. To see the latest offerings and begin investing today, login and create an investor account at www.investacrowd.com
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