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IPF/IPD Real Estate
At the IPD/IPF conference, John spoke on the panel, "The new rules. How should those investing UK capital in real estate meet the challenges of the new cycle?" The key points that John made in the discussion were:
The real estate industry has focussed a lot on the impact that mega-trends will have on the assets into which to invest. Less attention has been given to the impact on availability and sources of investment capital. For example, this panel and others at the conference looked at the process of rapid urbanisation. 2010 was a tipping point - for the first time in history the number of people living in towns and cities overtook the number living in the countryside. In 1950 the proportion living in towns and cities was 29%, by 2050 it is expected to be around 70%. One of the cultural changes associated with urbanisation is that societies tend to move to providing for old age by saving rather than by having large families. We are already seeing the impact of this in Asia, where a very rapidly growing, urban, middle class is starting to invest. PwC are forecasting that the largest source of additional investment capital over the next decade will be from the mass affluent in Asia. John's views on the mega-trends affecting the industry were set out in a presentation to the PwC European Real Estate Client conference two years ago entitled "Tipping Point", the slides for which can be found here: Information on the growth of Asian capital and broader changes affecting the pension industry can be found here:
Regulatory change is having a very significant impact on the industry, but we are currently in a difficult period of implementation and transition. With AIFMD, managers are struggling with the challenges of authorisation, but have yet to enjoy the benefits brought by pass-porting. The real success of AIFMD will be if it becomes established as a kite-mark in the way that UCITS has. The current ESMA consultation on the practical operation of AIFMD (see our previous newsletter,) is a positive sign. Regulation outside the EU is also hugely important. In the long-term, the most significant change might be that to the Chinese insurance rules to allow life companies to invest in real estate inside and outside China for the first time.
Although some large investors remain sceptical about investment in funds, others are finding the other options of investing directly or through joint ventures equally challenging. There is a recovery of interest of investment in funds. Developments in the fund industry are widening the choice with more semi open-ended and permanent capital vehicles available. Further developments in this area are expected.
There was a discussion on the Private Rented Sector, and the lack of suitable multi-family buildings in which to invest in the UK. John referred everyone to the excellent Urban Land Institute Build to Rent Guide: