By Konrad Putzier
Global real estate investment fell for the first time in five years in 2014 – but paradoxically that could be good news for the New York market.
Worldwide spending on real estate declined by 6.3 percent to $1.21 trillion, according to a report from Cushman & Wakefield issued yesterday (Tuesday).
The report noted that “this decline in activity can be solely attributed to a drop in Chinese land purchasing,” which had the side effect of catapulting the U.S. past China as the world’s largest real estate investment market.
However, Cushman & Wakefield reckons the global market is still in good health.
The firm expects global investment to rise by 11 percent in 2015 to $1.34 trillion, led by Europe and the U.S.
Moreover, the weakness in Chinese investment could actually benefit New York’s real estate market, explained David Dollar, a senior fellow at the Brookings Institution and former U.S. Treasury Department emissary to China.
In an interview with Real Estate Weekly, Dollar said he expects a continued growth in Chinese investment overseas – including U.S. real estate.
”It makes sense given that the real estate market is soft in China, there are not that many investment opportunities in China,” he argued.
“I think China has overbuilt the housing stock. They had a housing boom where they built housing very rapidly. There is a lot of unsold inventory, and it is only natural for the market to slow down,” Dollar added.
But while the Chinese market is softening, Dollar sees little reason to worry about a crisis. Instead, he believes the market will rebound soon.
On a recent trip to Beijing, he noted that most Chinese investors still have faith in local real estate.
Perhaps more importantly, he argued, China is still under-urbanized considering its level of wealth, meaning demand for urban real estate will likely increase long term.
The most recent housing boom was driven heavily by speculation and an estimated 20 percent of apartments sit empty, but given demographic trends Dollar does not see lack of demand as a long-term issue.
Investment in Chinese real estate may have weakened, but fears of a property crisis seem overblown. That’s good news for China and for New York.