JLL: Global savings increase to lead to $1.9tr of RE investment

Jones Lang LaSalle expects direct cross border transactions to rise significantly thanks in particular to striking growth in the savings industry of developing countries.

The volume of global direct property deals could increase by $1.9 trillion over the course of the next decade thanks to rapidly growing savings industries among developing countries.

Global property services firm Jones Lang LaSalle said in a research paper today that although less than one half of one cent of each dollar invested overseas went into real estate, the fact that the savings industry is forecast to rise above $37 trillion by 2022 would nevertheless have a “dramatic effect” on direct real estate investment globally.

It estimates that cross border investment could reach an average of $275 billion per year up until 2022, a steep rise from the $130 billion per year currently being witnessed.

“As we have seen, consistent growth in domestic savings can lead to a proportion of that capital ending up in direct real estate, both domestic and cross-border,” said Jones Lang LaSalle.
“For many emerging markets there are also institutional reasons why they seek out investment opportunities abroad such as regulatory hurdles, a small domestic investible universe or bans on domestic investment,” the firm noted.

According to JLL, China has the fastest annual domestic savings growth trajectory with 17 percent growth, followed by India (15.6 percent), Indonesia (15.5 percent), and Brazil (13.8 percent). Next is Russia, Poland, Turkey, followed by the established markets of the UK, Australia, the US, Canada and Japan.

JLL said the increase in gross domestic savings provided a “useful forward looking indicator” when considering the future path of real estate investment. At present, it said, population growth in many emerging nations combined with relatively high savings rates is significantly increasing the absolute level of global gross domestic savings.

It added: “Two markets that we have already seen make a mark in cross-border real estate investment are China and Indonesia. Both have seen gross domestic savings increase recently with a subsequent rise in cross-border investment.

Although the increase in gross domestic savings rates is set to slow in the coming decade the pool of capital will continue to build. While cross-border investment is a volatile series the mark made by Chinese and Indonesian investors outside their home markets has been noticeable in recent years, especially in 2011.”

However, the firm also spelled out that the phenomenon is not confined to emerging markets. Canada and Australia have been major players in the cross-border real estate investment market in the last 10 to 15 years. Based on structural changes in their home markets which boosted domestic savings combined with relatively small domestic property investment markets, they have been forced to look offshore for opportunities too. 

The research also says those nations set to benefit the most from the increase in savings have shown a preference for investment into core locations in the world’s biggest cities, particularly London, New York and Hong Kong.

In addition, direct real estate is set to benefit from an increase in commitments from existing pension and sovereign wealth funds, with allocations set to more than double.