The heightened activity in private equity real estate funds which increased their cross-border investment by over 60% in 2017 according to the Active Capital report by Knight Frank, shows how the volume of investment capital has grown globally.
The accumulation of wealth in developed countries has enabled investors to chase returns beyond their borders resulting in cross-border capital flows.
Real estate is still one of the favourite investment avenues around the globe. As investors exchange capital for opportunities in the global market, it is clear that some countries get the lion’s share of the capital available. These countries received disproportionately high amounts of capital compared to the rest of the globe.
For instance, the report shows that cross-border transaction volumes have grown by 80% over the past five years, but the increase has been heavily concentrated within a limited number of locations. ‘In fact, the top five countries by capital inflows have typically accounted for well over 60% of total cross-border investment over the decade.’
The report sought to highlight the reasons why this unfair disparity in capital attraction happens.
The findings show that those countries benefit from a significant market size with large and high quality assets, good levels of transparency, consistency in the rule of law. Investors, especially first time overseas investors, also chose these markets for reasons such as familiarity with the locations.
In addition, the income tax rate and the number of days it takes to complete a property deal were also indicators that investors considered when measuring a country’s economic health or level of development in the eyes of an investor.
Based on data, the report found that the US remained the major source of cross border capital on the planet with majority of it being spent in Europe.
Africa had the least capital outflows in real estate ($4.1bn) while established markets like Europe and Asia-Pacific each contributed at least $80bn into the global capital pool. From the report, Africa exported a large part of its real estate capital to Europe, North America and Asia-Pacific in 2017.
Despite economies contributing to global transactions outside their territories, domestic investments remained the larger part of real estate activity globally with 56% of the total investments compared to 44% of cross-border outflows
In general, variable factors such as transparency, economic growth and market liquidity will play a stronger role in determining the volumes of capital inflows to real estate.