Forbes India 15th Anniversary Special

Investment capital allocated to property is growing every year: Knight Frank's Alistair Elliott

Alistair Elliott, senior partner and group chairman, Knight Frank, says India seems to have turned a more positive corner as far as real estate investments are concerned

Samar Srivastava
Published: Apr 12, 2017 07:03:27 PM IST
Updated: Apr 13, 2017 11:05:41 AM IST

Investment capital allocated to property is growing every year: Knight Frank's Alistair Elliott
Image: Joshua Navalkar

The immediate aftermath of the Brexit vote hasn’t been as grim as it was initially feared, says Alistair Elliott, 55, senior partner and group chairman of real estate consultancy Knight Frank. Elliott, a lifelong supporter of the Chelsea Football Club, attributes this to the resilience of the British economy which has posted strong employment and GDP growth numbers in the last quarter. In an interview with Forbes India, he, however, offers a word of caution: Real estate is a long-term investment and those looking to make a quick buck shouldn’t bother investing in it. Edited excerpts: 

Q. What has been Brexit’s impact on real estate in the UK?
The impact hasn’t been as dramatic or volatile as people had predicted. There was a lot of hesitation in the run-up to the vote, so the market paused. As a result, the volumes are down and pricing is a little off, but ever since the referendum vote was cast, the momentum has been building gradually. I believe people have got renewed confidence in the UK administration. Overseas investors and home owners also seem to be re-engaging their interest in the UK market. And the government has now got the authority it needs to invoke Article 50 [Article 50 of the Lisbon Treaty sets out how a European Union member nation can voluntarily leave the union]. We hope that the communication that comes out from the European and UK authorities, as we go through the process to leave the EU, is clear and concise. What markets hate is uncertainty. And the UK has got reasonably strong GDP growth. So, for an external observer, it is a good time to buy.

Q. How much of the momentum has been due to the depreciation of the pound?
We’ll never know the answer to that. One would imagine that if an overseas buyer suddenly sees the effective price of a property down by 20 percent, he will be attracted to it. So that’s helpful. Do I think that if the pound gets back to its earlier position, overseas demand will evaporate? No. That’s because the pound’s recovery will reconfirm confidence in the UK generally.

Q. People who had bought before Brexit may be down on the monetary value of their investments. Would that not have dented their confidence?
It may have, but let me say this about investing in real estate—it is long term and cyclical. Don’t invest in real estate if you are thinking you can exit in short order. That doesn’t happen anywhere in the world.

Q. How much of the confidence is due to the fact that global markets for all asset classes have done well in the last six months?

It is a good observation. The investment capital allocated to property is growing every year. It moves in different places and at different speeds, but the volume of interest is growing every year. How much is due to sentiment and how much is due to the growth in capital allocated, we shall never know, but for those in the real estate market, it is the combination that is useful.

Q. Was the month after the Brexit vote scary for firms like Knight Frank?
It was. Our investors were asking at what price they could sell if they had to sell quickly, and what were our views on the medium to long term. Retail funds are a small percentage of the market, but they had to ensure they had the funds to comply with redemption requests. What we were telling them didn’t matter much. But by December 2016, even those retail funds were getting positive inflows.

Q. What are global high net worth individuals (HNIs) thinking about their real estate investments?
The global population is urbanising and key cities are expanding. The majority of mature real estate capital goes into the world’s key cities. We have seen very strong markets for residential and commercial [property] in Australia; in mainland China it’s for residential. There’s less activity in Taipei, Tokyo and India, but India seems to have turned a more positive corner now and there seems to be more activity. I think that the overarching view is about sectors. There are challenges in retail that investors have to address. The move from traditional brick-and-mortar retail to ecommerce is producing a need for owners of shopping centres to look at things differently. Meantime distribution and warehousing and logistics are becoming popular asset classes and that trend will continue. City living means there will be more development of residential [property]. The mix of what that offers between luxury and affordable and between for sale and rent will change.

Q. What is the level of interest in warehousing from real estate funds?
The warehousing segment of the real estate market is still user-led, but developers and investors are taking a keen interest. Etailers have specific requirements in terms of location and specifications. We have seen certain internet retailers partnering with developers to ensure they get the right supply in their relevant markets.

Q. Even HNIs are far more yield-hungry today. Have you noticed this among the investors you advise?

What you have to do is look at property as an asset class and compare it with everything else. Relatively speaking, in an investment-rich world, property stands to account well as an asset class. The yields may be under pressure today, compared to what they used to be, but the yield spread is good if you are prepared to entertain more risk. They compare favourably than what you get in equities or bonds.

(This story appears in the 14 April, 2017 issue of Forbes India. To visit our Archives, click here.)