The value of all global real estate – comprising residential and commercial real estate, and agricultural land, reached $379.7 trillion – R7.3 quadrillion, last year, maintaining the asset’s position as the world’s most significant store of wealth.
And residential property makes up 76 percent of the value of all real estate in the world.
Research by global real estate services provider Savills, reveals that, in 2022, property was more valuable than all global entities ($98.9 trillion/ R1,9 quadrillion) and debt securities ($129.8 trillion/R2,5 quadrillion) combined, and almost four times that of global GDP ($100.6 trillion/R1,9 quadrillion); by comparison, the value of all the gold ever mined, stands at $12.2 trillion (R235 trillion) – just 3 percent of the value of global real estate.
Even though the total value of global real estate decreased by 2.8 percent in 2022, from $390.5 trillion (R7,5 quadrillion) in 2021 – thanks to rising inflation and interest rates, it is still up 18.7 percent on 2019 pre-Covid levels.
It is also higher than the 2020 levels, says Dr Andrew Golding, chief executive of the Pam Golding Property group, which is Savills’ residential real estate partner in Africa.
“Notably, in terms of the different property sectors, residential is by far the largest, accounting for 76 percent of all global real estate value, and its value stood at $287.6 trillion (R5,5 quadrillion) in 2022, a decrease of 1.6% on 2021 levels ($292.2 trillion/R5,6 quadrillion). Here in South Africa, it is estimated that residential property is notionally worth some R6.6 trillion (approximately US$343 billion).”
Savills’ research states that commercial real estate value stands at $50.8 trillion (R978 trillion), comprising 13 percent of total real estate value, and ahead of the total value of agricultural land at $41.3 trillion (R795 trillion) which accounts for 11 percent.
Despite upheavals in the markets, and some speculation about the future of some sectors, Paul Tostevin, head of Savills World Research, says real estate as a whole continues to be the largest concentration of wealth in the world.
“Residential property dominates, and between 2019 and 2022 its value grew 21.1 percent – only outperformed by gold – as it benefited from ultra-low interest rates over this period, coupled with a focus on the home in many countries during lockdowns. It’s clear that given the under-developed nature of real estate in some locations, on a long-term basis growth will continue as more stock is added around the world.”
Value growth by asset
As of 2022, China was the world’s most valuable real estate market, accounting for 26 percent of total global real estate value (residential and commercial), followed by the United States which accounts for 19 percent. Savills notes, however, that Canada (7th) and Australia (10th) – both countries that have seen significant growth in residential prices in recent years, rank ahead of much more populous nations for total real estate value. India, the world’s most populous country, is in 14th position by value, demonstrating the potential for future growth in this market.
Unlocking real estate value in South Africa
Being a nation with a predominantly youthful population, Golding says there is a positive demographic dividend for the South African residential market as the proliferation of new, smaller households in the key urban areas ensures ongoing, strong demand for accommodation.
“Increasingly this is being met via the conversion of commercial properties into mixed-used residential developments as well as new homes in coastal provinces as a result of semigration. Either way, South Africa’s youthful demographic profile will provide a fundamental underpinning for the local residential market as the influx of new, young homeowners ensures ongoing demand, in turn facilitating the movement of existing homeowners up the property ladder.”
As interest rates begin to settle globally, Adrian Goslett, chief executive of RE/MAX of Southern Africa, says the expectation is that activity will return and house price growth will be stimulated.
The USA’S RE/MAX National Housing Report for July 2023 revealed that, following a series of interest rate hikes in the USA, there was a 16.1 percent decrease from July 2022. Similarly, RE/MAX Australia reported that the fastest sequence of interest rate rises in 28 years saw a 12 percent decrease in buyer demand at auctions through their winter period last year.
In South Africa, the Q2 2023 RE/MAX National Housing Report revealed that, after a series of interest rate hikes, the total number of transfers nationally is down by 42 percent year-on-year. Explaining why this drop in housing market activity can be expected when interest rates increase, Goslett says a large portion of property sales are a result of successful home finance deals.
“Across the globe, at higher interest rates, fewer buyers are able to afford home finance, which leads to a decline in the number of transactions that occur. Once interest rates settle and begin to drop, activity is eventually restored.”
While activity has dropped across the globe, house prices remain high. In the USA, the median of all 50 metro area sales prices was $425,000 (R8,075m) in July 2023, which is up by 1.2 percent from July 2022. In South Africa, the median price of a freestanding home is R1,47m, a 3 percent increase year-on-year, he says.
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