A Tale of Two Real Estate Markets: US and China
Stephen Dover: Tim, in a recent article you wrote, you pointed out that roughly 11% of the assets in the big institutional investors are in private real estate. And of course, other than their homes, most individuals don’t have access to that area of investment. As we look into 2022, what is your general outlook for private investing in real estate?
Tim Wang: Our outlook for the real estate market in 2022 is a very positive. As you know, demand has been strong, especially driven by the industrial warehouse sector, rental housing, and the life sciences. We’re in this inflationary environment. It has been well-documented that commercial real estate can hedge against inflation. And this is because of that landlord has the ability to increase rent under a better economic condition.
So, for that particular reason, institutional investors are increasing their targeted real estate allocation now to over 11% for next year. I think many high-net-worth individual investors are also catching up.
Stephen Dover: Let’s talk about the housing sector a little bit, and how you think about that. And I know probably for private investment, it’s more multi-housing than individual houses. How do you see that sector growing and where geographically do you see opportunities?
Tim Wang: Based on our calculation, in the United States, we’re having a housing shortage. Since the global financial crisis, there’s been chronic under-development of housing in general, over the past 10, 11 years. So, we probably have about a 5.5 million housing unit shortage in both for sale single-family homes and the multi-family in general. And you know, we talk about this theme of millennials getting older, they’re having families, they’re moving to the suburbs. So, that’s a great cyclical demand over the next 10 to 15 years.
In terms of geographic theme, we continued seeing the household migration from the more expensive [US] metros, like New York or California, to the less-costly metros, especially in the Sunbelt market. We’re talking about Florida, Texas, Phoenix, and the Las Vegas and those places because they are more affordable. Not only households are more relocating over there, but also corporations are following them because they know that’s where they can attract and recruit talent.
Stephen Dover: The sharp rise in the housing market post-COVID is really a global phenomenon in both developed markets and emerging markets, not just in the United States. So Tracy, can you tell us a little bit about the major drivers behind this housing boom, and whether you see risks or even possibly a housing bubble?