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Best countries and cities for real estate investment in 2021

AFIRE (Association of Foreign Investors in Real Estate) is the association for international real estate investment focused on commercial property in the United States.

AFIRE runs a yearly International Investor Survey, which was created to serve the needs of institutional real estate investors worldwide navigating the challenges of real estate investment.

AFIRE members are among the largest international institutional real estate investors in the world and have an estimated $2 trillion or more in real estate assets under management globally.

Take a look as we break down this years’ survey and outline the best countries and cities for real estate in investment in 2021.

Dreaming woman in headset over drawn living room background Concept to real estate investment

What are the main risks and opportunities of
real estate investment in 2021?

Real estate investment can be challenging, especially during these times where we keep experiencing unprecedented challenges, such as the Coronavirus outbreak, oil prices turning negative and stock markets collapsing.

AFIRE members are cautious expressing concerns about where the industry is in the typical real estate cycle.

They cited concerns about interest rate risks, high valuations, the impact of emerging technologies on retail and other property sectors, oversupply in some markets and property types.

The survey also outlines possible economic and political missteps which could affect real estate by triggering an economic slowdown or disruption in the financial markets.

Risks of real estate investment in 2021

Almost 50% of respondents included geopolitical and climate change issues such as rising sea levels among their primary concerns when it comes to real estate investment and about 40% cited currency fluctuations and interest rate risks.

Political risks

The key political risks which were cited included geopolitical events, mainly consisting of US tariffs and the trade war with China.

Brexit; protectionist policies and Hong Kong protests’ effect on trade in Asia also remain key concerns when it comes to cross border real estate investment in 2021.

Moreover, respondents mentioned that the main events they are concerned about in the Middle East are the war with Iran and civil unrest in Latin America

US domestic political risks

The main political risk for real estate investment within the USA for 2021 is undoubtedly the outcome of the 2021 elections.

Joe Biden has now taken over the presidency from Donald Trump in January 2021 and a new administration means the potential for some major policy changes.

Some of the most notable policy change concerns when it comes to real estate investment are in relation to immigration and labour issues.

Currency Risks

The respondents also voted currency risks as one of the biggest challenges of real estate investment in 2021.

These risks include currency fluctuation, forex market volatility, high hedging costs, interest rate risk and volatility, as well as negative interest rates leading to currency imbalances.

Illuminated currency exchange board showing exchange rates for various countries and currencies.

We understand that currency fluctuation is one of the biggest risks that investors should consider. If you are an investor looking to make a real estate investment in 2021, give us a call or fill in the form below to make sure you get the best value for your money.

Tax and regulatory environment

Participants of the International Investor Survey also showed tax and regulatory environment concerns for real estate investment in 2021.

The main risks of this category include less certainty around municipal requirements for development, lack of knowledge and lack of transparency on local governance (fiscal and legal) and real estate markets.

In addition to this worry, there were also mentioned concerns for multifamily property, political risk at the state and local level, additional regulation and other restrictive policies that make developing and handling increasingly expensive and difficult.

Economic slowdown

The main risks related to economic slowdown that could affect real estate investments in 2021 include global coordinated economic slowdown, decelerating US Gross Domestic Product (GDP) growth, and decreased growth in some European countries.

Pricing issues

Some of the main pricing issues that could affect real estate investment and that worry investors include:

  • Late-cycle high pricing
  • Compressed cap rates due to low interest rates
  • High competition for assets on the equity and debt sides

Other real estate investment concerns

Besides all the aforementioned issues that real estate investors are concerned about in 2021, there are few more that are uncategorised, such as:

  • Technology disruptions
  • Corporate high yield debt bubble
  • Lack of action to improve climate change and infrastructure investment
  • Exposing investments to increasing climate risks


OPPORTUNITIES FOR REAL ESTATE INVESTMENT IN 2021

Besides the risks, this survey also identified the greatest opportunities for real estate investment in 2021.

As already mentioned in previous surveys, the growth and strength of the US market represent a constant opportunity for real estate investors in 2021, as well as low-interest rates and attractive yields.

image of letters spelling investment. Concept of real estate investment in 2020

Diversification

Diversification is one of the most prominent real estate investment opportunities that resulted from the survey. In particular, scaling of the investment portfolio, the diversification to create long-term cash flow, market liquidity, and real estate quality.

Additionally, other opportunities mentioned include the exposure to sectors and opportunities uncommon in domestic markets and diversification into established and/or emerging markets

US growth and stability

As with most economies, the US has taken a battering as a result of the COVID-19 pandemic, experiencing particular struggles with unemployment. That being said, the US property market has remained relatively resilient during the time.

The Fed’s decision to keep interest rates at zero means that mortgage rates are expected to stay low for some time. As a result, the ability to secure cheap loans has fuelled demand for property within the US property market.

Simple size of the US market and greater liquidity means real estate investment opportunities are still there. Other opportunities include higher growth than European countries; better cap rates in the US and positive debt financing.

In fact, Europe has become highly costly in the face of poorer economics. Moreover, the US also has a strong relative value compared to government and high yield debt, and the yield spread over government bonds is another opportunity.

Additional opportunities related to the US growth and stability include extra return over domestic investment and positive essentials on a relative basis in comparison to other countries, such as growth and tightening vacancy figures.

US-specific strategies

US-specific strategies are opportunities that real estate investors should consider making a good investment in 2021. When talking about US-specific strategies, it is intended for the consistent growth in innovation centres across the country, the concentration of job and population growth in spite of all the regulatory risks previously mentioned.

Moreover, as hedging costs for European and Asian investors are decreasing, there are preferred opportunities in the US. Second markets are also developing strongly due to lack of new housing supply and an increasing number of households. Therefore, there are higher opportunities for overseas investors looking beyond traditional markets in the US.

Additionally, the strength in many of the residential markets, such as senior care and student housing is also an opportunity for real estate investors in 2021.

Non-US-specific strategies

Non-US specific strategies include global urbanisation and demographic changes as well as divergent interest rate environments decoupling economies and making overseas investments more attractive.

US unemployment benefits application rise by 3.28 million in the last week

What are the best cities for real estate investment in 2021?

Now that the main risks and opportunities of real estate investment in 2021 were outlined, it is also important to mention the actual places where it is more convenient to invest for real estate investors.

London and Los Angeles amongst best cities for real estate investment

In 2018London was voted the number one city in the world for real estate investment, with German cities such as Berlin increasingly becoming attractive options.

However, things took a turn in 2021, with London now being number 4 in the ranking, still impressive given the historic uncertainties with Brexit.

Brick houses on a panoramic shot from Muswell Hill, London, UK. Concept of real estate investment in London

In 2020, Los Angeles has been voted as the best city for real estate investment, moving swiftly up from 7th place in 2019. Los Angeles is often considered to be a wise choice for long term real estate investment as it consistently remains an attractive place to live and investors almost always get their money back at the very least, with most making a healthy profit.

The population of Los Angeles in 2020 is 12,447,000, whilst September 2020 showed that the median list price of Los Angeles property was USD 950K, up 5.7% compared to last year, while the median sale price was USD 850K.

Whilst LA looks to remain a wise choice for long term investments, property prices in the area are forecast to only rise by 0.7% this year as a result of COVID-19.

  

Other important places for real estate investment in 2021

London dropped three positions from the 2018 survey, with New York dropping to position 9 in the Global Cities category. Paris is number 2 and the best previous European city for real estate investment Berlin dropped to position 8.

London’s 2020 population stands at 9,304,000, a 1.3% increase compared to 2019. The average price for property in London stands at GBP 666,842 for November 2020. This is an increase of 3.59% since August 2020 and a rise of 5.34% compared to 12 months ago.

The population of Paris in 2020 stands at 12,278,210, with the average price of existing apartments rising by 7.95% to EUR 10,460 per square metre (sq. m.) during Q1 of 2020. In Q2 Property prices in Paris hit an average of €10,690 per square meter and are expected to climb to €10,860/m² in October.

Edward M. Casal, AFIRE’s newly elected chairman, and chief executive, global real estate, of London-based Aviva Investors, says:

“A year later, foreign investors are less concerned about the ramifications of Brexit. At the same time, the London market has been buoyed by several large sales over the last year. London has a number of attributes as a location for investment, including a stable rule of law, transparency, and use of the English language. In addition, a favourable time zone for international business, deep labour pool, and cultural attributes also help.”

Which countries are the best opportunity for real estate investment and capital appreciation?

In 2018, the International Investor Survey announced the top five countries providing the best opportunity for capital appreciation. These were:

Ranking Country
1. US
2. Brazil
3. China
4. Spain
5. UK

The US also continues to lead the world in terms of offering the best opportunity for capital appreciation, followed by Brazil, remaining in second place.

China and Spain both moved up from a sixth-place tie last year, taking third and fourth places respectively.  The UK fell from third to fifth place.

Most Stable and Secure Countries for Real Estate Investment

Here is the list of most stable and secure countries for real estate

Ranking Country
1. US
2. Germany
3. Canada
4. UK
5. Australia

With 58% of respondents’ votes, the US remains the country considered the most stable for real estate investment. Germany again took second place with 20% of the votes, and Canada remained in third place with 12%. The UK moved into fourth from fifth, while Australia fell from fourth to fifth.

Top Emerging Countries for real estate investment

AFIRE also provided an overview of best emerging markets for investors. Brazil regained its foothold as the number one emerging market, moving up from third place to replace China, which fell to second place. India moved into third place from fourth, Mexico fell from second place to a tie for third with India, and Colombia entered the list of top five emerging markets in fifth place.

Here is the ranking of best emerging countries for real estate investment:

Ranking Country
1. Brazil
2. China
3. India
4. Mexico
5. Colombia

Top cities for real estate investment in the United States

Eighty-six per cent of respondents say they plan to maintain or increase their investment in US real estate. Mr Casal says:

“Significantly, San Francisco, which has been on investors’ top five global cities list since 2011, fell into 11th place, and Washington, D.C. continued its slide among global cities, falling from 15th place last year to 25th this year.”


Top US cities for real estate investment

New York used to be named the top US city for the last years, holding a substantial lead over Los Angeles. But things turned around in 2020, where Los Angeles topped the charts for the best global city to make real estate investments. Here is the ranking

Nonetheless, by a substantial margin, the US was ranked as the number one country for planned real estate investment in 2018 followed by the UK, Germany, Canada, and France. Survey respondents also cited several strengths of the US market including the United States’ strong, stable economy, transparent capital markets, and reputation for innovation. As alternative asset classes, they pointed to senior housing, infrastructure, medical office buildings, and student housing.

Real estate agent giving keys to apartment owner, buying selling property business. Close up of male hand taking house key from realtor. Mortgage for purchasing flat, getting access to own home after a real estate investment

Real estate investment in 2021

It will be very interesting to see how the results for the 2021 real estate investment survey differ to this year.

With the plight of the COVID-19 pandemic still ongoing, undoubtedly there will be some dramatic changes within particular countries.

That being said, cities such as Los Angeles, Paris and London have all seen demand continue this year despite the virus.

For the UK, the end of the Brexit transition period will also likely affect investor sentiment going forward.

This was an overview of the best places, cities, risks and opportunities to consider for real estate investment in 2021.

If you are a property investor and are looking to make an overseas real estate investment, we can give you expert and tailored guidance to make sure you get the most out of the currency conversion. Feel free to give us a call or fill in the form below.