How private investors operate in the real estate market
Knight Frank conducted a study of trends in the real estate market. The results showed that private investors are changing their preferences and increasingly turning to real estate. This sector is becoming an important part of their investment strategies.
The survey involved 150 companies that manage family capital. According to the data, 42% of respondents plan to increase the proportion of real estate in their portfolios. For most respondents, real estate remains one of the key areas. Direct investments rank third in popularity, after the stock market and cash. Indirect investments in real estate are in seventh place.
Features of a private investment strategy
For most of the surveyed companies, real estate investments are part of a comprehensive strategy. In addition to real estate, this strategy involves activities in venture capital, the stock market, and private investment.
Some respondents view real estate investments as part of their operational business. For others, real estate investments serve as a hedge against inflation and a source of regular income.
Popular approaches among the surveyed companies are:
– an opportunistic strategy, chosen by 32% of respondents;
– a value-added strategy, preferred by 30%;
– a conservative core strategy, used by 16% of companies;
– direct investments, made by 34% of survey participants;
– funds, a key instrument for 19% of respondents;
– a joint venture approach, used by 13%.
Businesses most often use medium- and long-term strategies. Often, this refers to a period of more than nine years. A term of six to nine years is also popular. Meanwhile, approximately 3% of investors opt for three-year investments.
The primary objective of investments is to increase capital. Companies also view real estate as a means of preserving assets and generating income. The average annual rate of return is about 14%. However, this rate is only possible without debt financing.
Investor interests in the market
Companies primarily focus on acquiring private residences for personal use. On average, investors purchase four to five properties. Such real estate is viewed as an inheritance or a means of preserving capital. At the same time, generating rental income is not a priority.
The survey shows that 14% of respondents prefer to work in residential real estate. Industrial and logistics properties are in less demand. Investments in luxury housing are third in popularity. However, companies are acting quite cautiously given the risks associated with the real estate market. The complexity of taxation and regulation is among the main limiting factors. Furthermore, companies often struggle to find reliable partners capable of handling a variety of tasks.