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Global Investing: Cost of Borrowed Money to go high in Global CPI

US CPI (Commercial Property Investment) market worth $11 trillion was beneficiary for China’s $4 trillion reserves of dollars. But not for long now, Yellen Fed is all set to increase the cost of the borrowed money in the coming 2 years.

There were 19 FOMC rate hikes &375 basis point rises in the Fed Funds rate because of 2004-06 interest rate tighten. This cycle will be as same as Trump’s policies increasing inflation risk & post election bath in the bond market of $3 trillion loss will continue.

Global Real Estate

Picture Courtesy: www.fine-arts-print.com

Since last 8 years, office buildings rates in a prime market have doubled due to bull phase. It will end with reprisal as interest rates and inflation will surge in this year and next year. Although the vacancy rates have started to grow higher, sales growth tracks have softened. Original rates on commercial property backed pools (CMBS) have also got up to 10% in last year.

$250 billion worth of commercial mortgage-backed securities is due in the year 2017-18. This might come across as a double curse for the landlords and lenders whose hands are currently tied with risk retention rules. Investing for short period of time and floating bank rate loans for overvalued asset category is preferable.

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Picture Courtesy: www.thecrowdfundnetwork.com

It is alarming to know that around 24% of the commercial property buyers are from GCC group. The investors from the group have been lured by the illusion of cheap properties in the bear market in the Gulf region which is a mistake because Chinese market will not lift the value in London prime as Beijing has cracked down in his capital flight from the Middle Kingdom.

The real opportunities for making money in the real estate sector in commercial category lie in the areas where the supply is limited and the demand is inelastic and where the government policies are largely propping higher property rates.

Leasing online and technologies related to data analysis will curb the brokerage costs.  Investors who don’t understand the complexities of a fluid global macro dimension of property more often gets wiped out in this leveraged asset category.

In near future, GCC and Silicon Valley will revolutionize the usage of office spaces through millennial generation’s work choices. “Industry Clusters” will be the next big thing which will be located near talent hubs. Sharjah would be welcoming to these types of trends because of its Boston like the proliferation of universities and colleges. E-commerce fulfillment centers will be developed by department stores.

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