June 4, 2009 / 11:37 AM / 8 years ago

Falling property markets hit by forex volatility

LONDON (Reuters) - There was a 42 percentage point spread between the best and worst price movements in global commercial property in 2008, as currency volatility added to investors' challenges, a new global index showed on Thursday."

The Investment Property Databank Global Index, which compares pricing and total returns in 23 of the world's most mature commercial real estate markets, placed Ireland and South Africa at the lower and upper extremes of the global property pricing changes last year.

It said Irish commercial property prices fell 37.2 percent in local currency terms, while South African prices rose 4.4 percent, thanks to domestic inflation of 11.5 percent.

The index underlined how commercial real estate value adjustments have been taking place at different paces around the world, due to differences in peak prices prior to the tipping points; the level of capital flows into different property markets before the crisis; and national variations in supply and demand for assets.

According to the Global Index, the 2008 global total return in dollars was minus 10.1 percent, reflecting a minus 14.7 percent capital return, partially offset by a stable income return of 5.4 percent.

"In a year of globally synchronised economic recession, it is not surprising that IPD's Global Property Index breaks records in the sharpness and scale of the correction in investment property prices recorded," Ian Cullen, IPD's co-founding director, said in a statement.

"Perhaps less keenly anticipated was the spread across the 23 constituent markets, with double figure declines in the U.S. and UK diluted by much more muted or delayed responses in the other three biggest markets -- Japan, Germany and France," Cullen said.

Despite severe capital falls, the estimated size of the professionally managed global real estate investment market was in excess of $4.6 trillion, IPD said.

The spread of returns on a dollar basis was even more substantial than local currency capital movement spreads, at more than 64 percentage points.

The much-weakened sterling rate against both the euro and the dollar last year made Britain the weakest national market on a dollar return basis, at minus 44 percent, while the strongest performer was Japan, at 23 percent, due to yen strength against the dollar.

This is the second publication of the IPD Global Property Index but the first including consistent data from the United States following the inclusion of the IPD US Annual Property Index, launched last month.

The global index enables cross border real estate investors to measure the performance of international property on a like-for-like basis.

Weighted composition of IPD Global Index by country (above 1 percent):

United States - 43.9%

Japan - 9.7%

Germany - 8.2%

Britain - 7.6%

France- 6.7%

Canada - 3.1%

Switzerland - 2.9%

Australia - 2.9%

Sweden - 2.4%

Italy - 2.2%

Netherlands - 2.1%

Spain - 1.6%

Finland - 1.1%

The IPD Global Property Index database is comprised of more than 50,000 assets worth $1.1 trillion as at the end of 2008.

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