BRICKS & MORTAR TO CAPITAL MARKETS & FUTURE TRENDS

The real estate market - everywhere - went from local to global; and from being bricks-and-mortar to the capital market.

The real estate industry has played  key roles in transformational changes and helped create enduring legacies of highly liveable and sustainable environment in the world.

Real estate has an evolution and the contributory factors can be identified. From the humble beginning of locally focused real estate markets here and there, built mainly for owner occupation, to a globalised market. Most importantly, the increasing integration of bricks-and-mortar real estate with the capital markets as evidenced by the securitisation of both real estate equity and debt.

BRICKS & MORTAR TO CAPITAL MARKETS

Innovations in the real estate industry and the capital markets over the past few years have enabled all parts of the underlying capital structure of real estate to become tradable both in the private and public markets. This transformational change has resulted in a vastly expanded range of real estate investment instruments and vehicles.

The use of innovative debt instruments, initially confined to the US, later spread to the more developed markets in Europe. The real estate debt market remains under-developed in Africa though. 

On the equity side, the breakthrough was the introduction of real estate investment trusts or Reits - the bundling of a portfolio of income-producing properties for listing on the stock exchange. Developers now have another reliable vehicle to recycle capital, while small investors can invest through Reits to own a share of large commercial properties. The advent of Reits led to a surge in the securitisation of public real estate equity and private (or sometimes called unlisted) equity funds throughout the world.

FUTURE TRENDS

The real estate industry has shown resilience, innovation and adaptability in transforming itself in the past few years. Hopefully it will be just as adept at meeting future challenges

There are few major trends that could have significant impact on real estate markets soon.

- Technological disruption is expected to affect the real estate market sooner than expected. Big data application, especially in the search process, could threaten and affect the real estate services industry, which includes agency, valuation and sales. These real estate intermediaries and service providers must re-strategise. Other effects of technology can be seen in e-commerce as it changes traditional shopping habits, rendering some malls obsolete.

- Green and sustainable built environment will receive more attention from regulators, developers and also users.

- Geographical diversification will see local developers taking more risks on opportunities offshore. Real estate markets could become more connected and globalised, especially in the logistics and commercial sectors.

- Financial and capital markets will become more integrated with the physical real estate market. As REITs create channels to securitise illiquid real estate assets and also create more efficient flows of capital across borders.

- Preparing the next generation of real estate professionals must take into account future challenges. Real estate education needs to provide greater global exposure to students and professionals.

There are indeed many challenges ahead. What has worked in the past few years may not work in the next few years. A new formula will need to be found to prepare for new challenges in the remaking of the "Future in Real Estate".