Transcript Document

RESEARCH PAPER:
DUTCH RESIDENTIAL INVESTMENTS
IN EUROPEAN PERSPECTIVE
1
OUTLINE
Residential real estate in the investor portfolio
 Steady income return
 Moderate inflation hedge
 Low correlation with other asset classes
 High portfolio diversification potential across Europe
The conditions on the Dutch housing market
 Regulation is consistent
 Economic situation shows positive signs
Indicators for investing in Dutch residential markets are positive
 Pricing has improved
 Housing shortage is increasing
 Non-regulated rental market will be bigger
2
GOOD RISK-ADJUSTED RETURN AND
MODERATE INFLATION HEDGE
 Residential investments have a
good long-term risk-adjusted
return.
25%
 Volatility of capital growth has
been relatively high, and income
volatility very low.
5%
 Over the past ten years the total
return in Sweden, the UK and
the Netherlands has only been
negative once. For France,
Germany and Switzerland this
has not occurred even once.
ANNUAL TOTAL RETURNS
20%
15%
The Netherlands
10%
France
0%
2003
-5%
Germany
2004
2007
2008
2009
2010
2011
United Kingdom
2012
Sweden
Switzerland
-15%
-20%
Source: IPD (2003 - 2012)
Correlation to inflation
1 year
0.30*
2 year
0.35**
3 year
0.40**
Stocks 2
- 0.09
- 0.09
- 0.11
Bonds 3
0.10
0.10
0.09
Liquidity 4
0.29*
0.33**
0.34**
1
3
2006
-10%
Residential 1
 Residential investments give
more protection against inflation
risk than other Dutch asset
classes.
2005
* Significant at a 90% level ** Significant at a 95% level
BIS (1971 - 2012) 2 MSCI Netherlands (1971 - 2012) 3 JP Morgan GBI Netherlands 7-10 years (1975 - 2011);
4 3-month Euro deposito (1971 - 2012); 5 FTSE EPRA/NAREIT EU (1990 - 2012)
DOUBLE DIVERSIFICATION: IN OVERALL PORTFOLIO
AND IN HOUSING PORTFOLIO
 Correlations between housing
investments and other Dutch
asset classes are very low.
 So housing offers excellent
diversification potential.
Cross-correlation
Residential (IPD)
Stocks
Stocks
0.15 1
Bonds
- 0.10 1
- 0.09
1
0.03 1
0.20
1
Liquidity
1
 Cross-country
correlations
among European residential
markets are low.
Crosscorrelation
The Netherlands
France
France
0.13
 So international investment in
housing
provides
good
diversification advantages.
Germany
0.09
0.21*
Sweden
0.38**
0.43**
 The low correlations between
the Dutch housing market and
other European markets stand
out.
United Kingdom
4
Bonds
Switzerland
0.23 *3
* Significant at a 90% level ** Significant at a 95% level
1977 – 2012; 2 1990 – 2012; 3 1977 – 2011; 4 1990 - 2011
Germany
Sweden
Switzerland
- 0.07
-0.28*
0.27*
0.59**
0.17
0.09
0.45**
0.40
0.46**
0.70**
* Significant at a 90% level ** Significant at a 95% level
Source: BIS (1971 – 2012)
OUTLINE
Residential real estate in the investor portfolio
 Steady income return
 Moderate inflation hedge
 Low correlation with other asset classes
 High portfolio diversification potential across Europe
The conditions on the Dutch housing market
 Regulation is consistent
 Economic situation shows positive signs
Indicators for investing in Dutch residential markets are positive
 Pricing has improved
 Housing shortage is increasing
 Non-regulated rental market will be bigger
5
RENT REGULATION CREATES INFLATION HEDGE
AND REGULATED SECTOR WILL GET SMALLER
Rents, regulation and inflation
 Regulated rental dwellings (88% of
the market) have a rent increase
based on inflation.
 This is a reason why housing
returns are correlated with inflation.
RENT INCREASE LINKED TO NL INFLATION
5%
4%
3%
2%
Regulated sector gets smaller
1%
 Up to one million regulated houses
could get non-regulated, based on
current WWS points.
0%
Inflation rate NL
Rent increase
1995
1998
2001
2004
2007
2010
2013
Source: CBS(2013)
 Due
to
income-based
rent
increases regulated dwellings will
likely get non-regulated.
 Social housing providers have to go
back to core business.
 So non-regulated rental dwellings
could shift towards other landlords.
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RESIDENTIAL MORTGAGE DEBT HIGH, BUT
HOUSEHOLD BALANCE SHEET LOOKS HEALTHY
RESIDENTIAL MORTGAGE DEBT TO GDP RATIO
 The mortgage-debt-to-GDP ratio
has increased rapidly.
120%
 The Dutch ratio seems very high,
which is caused by
80%
100%
40%
− increasing house prices
20%
− willingness of home buyers to
take out mortgage with high LTV
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Sweden
Germany
France
0%
2000
− growing popularity of mortgages
that do not (directly) amortize
2002
2004
2006
2008
2010
Source: Hypostat (2011)
€ 817
€ 2,081
Capital
2000
Pensions
2400
800
€ 1,158 - € 652
400
€ 758
- € 95
Other debt
1200
Other assets
1600
€ 506
Overvalue
0
Mortgage debt
Billions
BALANCE SHEET DUTCH HOUSEHOLDS (2011)
House value
 The large mortgage debt is put in
perspective by the underlying
house values, other assets and the
extensive pension scheme in the
Netherlands.
United Kingdom
60%
− increasing home-ownership
 Many mortgages have savings
account
attached,
which
is
currently not in the statistics.
Netherlands
Source: CBS (2012, 2013)
THE ECONOMIC OUTLOOK IS IMPROVING FAST
 The economic outlook has
recently started to brighten up.
 Consumer confidence is going
up, after years of pessimism.
CONSUMER CONFIDENCE
45
 Real GDP is expected to
increase by 1.0% in 2014, and
1.5% in 2015.
45
Germany
45
30
30
30
15
15
15
0
1995
-15
 In 2012 and 2013 the
Netherlands had negative
GDP growth rate of 1,2% and
0.4%, respectively.
France
2001
2007
2013
0
1995
-15
2001
2007
2013
0
1995
-15
-30
-30
-30
-45
-45
-45
45
Switzerland
45
The Netherlands
45
30
30
30
15
15
15
0
1995
-15
2001
2007
2013
0
1995
-15
2001
2007
2013
0
1995
-15
-30
-30
-30
-45
-45
-45
Sweden
2001
2007
2013
United Kingdom
2001
2007
2013
Sources: European Commission (2014), Swiss National Bank (2014)
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OUTLINE
Residential real estate in the investor portfolio
 Steady income return
 Moderate inflation hedge
 Low correlation with other asset classes
 High portfolio diversification potential across Europe
The conditions on the Dutch housing market
 Regulation is consistent
 Economic situation shows positive signs
Indicators for investing in Dutch residential markets are positive
 Pricing has improved
 Housing shortage is increasing
 Non-regulated rental market will be bigger
9
DECLINING HOUSE PRICES RESTORE EQUILIBRIUM
BETWEEN HOUSE PRICES AND RENT LEVELS
 Since the start of the financial
crisis Dutch house prices have
decreased more than those in
comparable countries.
 Dutch nominal house prices
have fallen 18% and are now
back at the year 2000 level.
 The house price/rent ratio is
an
indicator
for
the
attractiveness of rental houses
for investors.
 Since 2008 the ratio is
declining, caused by declining
house prices and increasing
rent levels.
 The Dutch ratio is currently
very close to its long-term
equilibrium.
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HOUSE PRICE / RENT RATIO (1975-2013)
France
175
Germany
175
150
150
150
125
125
125
100
100
100
75
75
75
50
50
50
1975
175
1985
1995
2005
2013
Switzerland
1975
175
1985
1995
2005
2013
1975
The Netherlands
175
150
150
150
125
125
125
100
100
100
75
75
75
50
50
50
1975
1985
1995
2005
2013
1975
1985
1995
Sweden
175
2005
2013
1975
1985
1995
2005
2013
United Kingdom
1985
1995
2005
2013
Source: The Economist (2013)
INCREASING NUMBER OF HOUSEHOLDS,
DECLINING NUMBER OF BUILDING PERMITS
8
90
6
60
4
30
2
0
0
11
2060*
2050*
2040*
2030*
2020*
2010
2000
1990
1980
-30
-2
Source: CBS (2013)
NEW BUILDING PERMITS AND
FINISHED DWELLINGS
100.000
80.000
Owner-occupied
60.000
Rent
40.000
Building permits new
dwellings
Finished dwellings
20.000
2012
2010
2008
2006
2004
2002
1998
0.000
1996
 With a sharp decline in permits
granted, the construction of new
homes will likely continue to be
low in the next two years,
resulting in housing shortages.
YTY difference
Number of households
120.000
 During the financial crisis there
has been a decline in the amount
of newly built dwellings.
Millions
120
2000
 Based on the most recent
forecasts, Dutch population will
grow until 2040.
10
1970
 The number of Dutch households
is expected to increase by
around 60,000 per year.
150
1960
 In 2012 there was a shortage on
the housing market of about
3.4%.
Thousands
TOTAL NUMBER OF HOUSEHOLDS
Source: CBS (2013)
HOUSING DEMAND STRONG IN URBAN AREAS
AND DEMAND WILL SHIFT TO UNREGULATED SECTOR
Household development
EXPECTED REGIONAL HOUSEHOLD DEVELOPMENT (2012 – 2030)
 Strongest in urban areas, larger
cities in ‘Randstad’: Amsterdam,
Utrecht, The Hague.
 Smaller cities in Brabant: Breda,
Den Bosch, Eindhoven.
 Many rural areas in northern and
southern parts of the country will
face decline in housing demand.
Demand for unregulated housing
 A growing part of this demand will
go to unregulated sector in the
next twenty years.
 This is due to changing social
housing policy and less favorable
tax treatment for mortgages.
 Households that plan to move are
relatively more willing to rent.
Expected household development
per municipality (2012 - 2030)
Less than - 500
- 500 to 0
0 to 200
200 to 500
More than 500
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Source: ABF Research (2014)
LESSONS FOR DUTCH INSTITUTIONAL HOUSING
INVESTORS
 This seems to be a good moment to get in.
− The market is priced attractively
− Long-term reforms are implemented
− Scarcity of supply is likely to increase
 But the rest of the world does not know it.
− Interviews with international experts and
foreign institutional investors show lack of
knowledge
− But there would be interest if the right
opportunities were presented
− Co-investing with respected
institutional investors is attractive
 So fly to the money!
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Dutch