US$250 billion in overseas real estate investment driven by gut feeling rather than data
Grant Thornton LLP warns reliance on instinct can lead investors to miss emerging pockets of opportunity for growth
TORONTO, Sept. 15, 2015 /CNW/ - Soft power and gut instinct is driving an estimated US$250 billion per year* in overseas real estate investment, a new report by Grant Thornton reveals. The results show that feeling, rather than data analysis, determines many investment decisions. This comes amid a surge of overseas real estate activity as investors seek new bedrocks of political stability. However, Grant Thornton warns that reliance on instinct, while important, can lead investors to miss emerging pockets of opportunity if not complemented by more analysis and using local expertise.
Cross-border real estate transactions rose by nine percent in the first half of 2015** and, according to research conducted by Grant Thornton for its new report Uncovering opportunities for overseas investment and growth, this surge is being driven by a growing desire to seek politically stable regions for investment. When it comes to making location decisions, gut instinct is the dominant driver. When asked what drives their decision to enter and make a significant investment in a foreign market, over half of senior executives in Canada (51%), Australia (51%), USA (58%), UK (58%) and India (61%) said that 'it simply feels like a good fit'.
"The cross-border real estate investment market is in a purple patch, as a whirlwind of demographic and political changes reshape the global landscape and force savvy, progressive investors to seek stability in new territories," said Bo Mocherniak, National Leader – Real Estate and Construction at Grant Thornton.
"Against this backdrop, what really stands out from our study is that the sheer force of familiarity cannot be underestimated. Put simply, investors like putting their money into territories they know. It's a double-edged sword though. Without more comprehensive analysis alongside it, gut instinct can blind investors to emerging opportunities in less familiar locations."
The report finds that the countries with the highest soft power rankings – a measure of a nation's cultural attractiveness and allure – are not necessarily those ranked highest when it comes to political stability. When exploring the factors proving particularly attractive, a striking correlation emerges between the level of overseas students countries receive and the amount of overseas real estate investment (see graphic below).
"In conversations with investors around the world it became apparent that soft power carries serious weight. Further analysis found that investors don't tend to pick a market without having a connection. And education is one of the most powerful connections; where students go, the real estate money follows," Bo Mocherniak added.
"But falling into the trap of thinking you don't need a lot of evidence before making a decision could mean missing out. Investment horizons can be broadened by complementing instincts with use of evidence and analysis. Critical to this is incorporating local expertise, which can often present opportunities which may not otherwise have been considered.
"By balancing gut instinct with greater factual analysis, investors will be best placed to navigate the shifting sands and make the most of previously uncited opportunities."
Grant Thornton's new report, Uncovering opportunities for overseas investment and growth, explores the trends, challenges and opportunities facing the global real estate market today. It provides practical, achievable actions for investors looking to harness the forces shaping global real estate activity. To download a copy please visit www.grantthornton.ca
Notes to editors
The insights in this report are drawn from a number of in-depth qualitative interviews conducted in Q2 2015. Statistics were provided by the Grant Thornton International Business Report (IBR), which provides insight into the views and expectations of more than 10,000 businesses per year across 36 economies. Fieldwork is undertaken on a quarterly basis, primarily by telephone. IBR surveys both listed and privately held businesses.
This report contains data drawn from interviews with more than 2,500 chief executive officers, managing directors, chairmen or other senior executives from all industry sectors conducted in May 2015. More information: www.grantthornton.ca
About Grant Thornton LLP
Grant Thornton LLP is a leading Canadian accounting and advisory firm providing audit, tax and advisory services to private and public organizations. We help dynamic organizations unlock their potential for growth by providing meaningful, actionable advice through a broad range of services. Together with the Quebec firm Raymond Chabot Grant Thornton LLP, Grant Thornton in Canada has approximately 4,000 people in offices across Canada. Grant Thornton LLP is a Canadian member of Grant Thornton International Ltd, whose member firms operate in close to 100 countries worldwide.
SOURCE Grant Thornton LLP
Image with caption: "Correlation between political stability, soft power and investment (CNW Group/Grant Thornton LLP)". Image available at: http://photos.newswire.ca/images/download/20150915_C8130_PHOTO_EN_497181.jpg
Image with caption: "Correlation between international students hosted and incoming real estate investment in 2014 (CNW Group/Grant Thornton LLP)". Image available at: http://photos.newswire.ca/images/download/20150915_C8130_PHOTO_EN_497183.jpg
Mishka Alarcon, T +416 607 2672, E [email protected]
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