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UN Sustainable Development Summit: Everyone in Favour of Everything
By Dr. Rainer Zitelmann
It was the largest UN Sustainable Development Summit in history. One week ago, 193 member states agreed on 17 sustainable development goals and 169 targets. The summit announced a commitment to end extreme poverty everywhere, within the next fifteen years.
Of course they all professed their support for supported this. In the same way that they are all equally committed to “gender equality,” including all of the representatives from the UN’s islamic member states. In exactly the same way that everyone at the summit supported the “protection and promotion of biodiversity.” The summit’s attendees also pledged to promote “good governance and democracy”-including North Korea, Egypt, and many of the African states that don’t even have recognisable governments anymore. They all lined up against corruption, even the African and Latin American states in which corruption is widespread and corrupt leaders govern.
A small group of nine heads of state, including Angela Merkel along with the presidents of Brazil, Tunisia, Tanzania, Columbia and Liberia, have been tasked with the job of ensuring that the goals and targets are met within the next fifteen years. What a pity that poverty, corruption, hunger and the rest of the world’s problems can’t simply be eradicated by a unanimous resolution.
What often gets forgotten is the enormous progress already made during the course of the last century. The UN itself released a study just a few years ago outlining how poverty had decreased faster over the last 50 years than at any point in the preceding 500 years.
Yes, the world is still plagued by levels of hunger and suffering towards which no one should be indifferent. At the same time, it is absurd that capitalism – as we saw in speech after speech at the UN sustainable development summit – should be identified as the sole culprit and hauled over the coals. The countries in Africa hardest hit by famine are suffering from a shortage rather than an excess of market economics.
Taken as a whole, capitalism has improved the standard of living on our planet far above and beyond anything achieved by any other economic system. 85% of the world’s population in 1820 were living on less than the equivalent of a dollar a day, today the figure is down to 20%. The average person in a developing country will now live beyond their 65th birthday, 100 years ago they were lucky to make it past 30. Life expectancy is rising in almost every country – including those in the third world – by a few months every year. “Capitalism,” wrote the Spiegel journalist Jan Fleischhauer, “can rightfully boast of its exemplary record in delivering on what it promised. When it comes to socialism, the exact opposite is true. Socialism hasn’t kept any of its promises, in fact things went completely wrong anytime its proponents made moves to translate their bold ideas into actions.”
Back to the UN Sustainable Development Summit: Instead of putting forward “17 goals” and “169 targets” the most sensible demand would simply have been: “Capitalism for all.” The fact that market economies deliver increased prosperity and planned economies deliver nothing but poverty and hunger is clear to anyone who glances at the ranking of economic freedom that is published every year.
The most economically liberal (i.e. most capitalist) states are:
Hong Kong
Singapore
New Zealand
Australia
Switzerland
The most illiberal economies are:
North Korea
Cuba
Venezuela
Zimbabwe
Eritrea
Guinea
Kongo
Need I say more?
Comparing China, which has made rapid economic progress since liberal economic reforms were introduced, with North Korea, where the state-run planned economy has led to poverty and shortages of food, is enough to support this thesis: Free market economics is the best recipe against all of the evils the UN sustainable development summit hopes to eradicate.
I mentioned earlier that a group of nine heads of state will be making sure that the summit’s lofty goals are achieved. Looking at where these countries stand in the economic freedom rankings is very revealing: Tunisia is 107th place, Tanzania is 109th, and Liberia is 141st. I would like to wish Angela Merkel, along with the heads of these other states, the best of luck in cleansing the world of all its ills.
Read also Rainer Zitelmanns Finance Blog.
Local Authorities want to Commandeer Properties for Refugees
As reported by the FAZ and the SÜDDEUTSCHE ZEITUNG on 30.09., the HANDELSBLATT on 29.09. and 30.09. and the IMMOBILIEN ZEITUNG on 01.10., local authorities – in Berlin, Bremen, Hamburg – are planning to commandeer privately-owned buildings, in order to house increasing numbers of refugees. It is already clear in many regions that the local authorities are unable to buy or rent housing quickly enough to keep up with the stream of newly arriving refugees. There is a deal of controversy surrounding such measures, but in emergency situations the authorities do have such powers. The individual municipalities are all calling on almost identical local legislation such as state “Police and Regulatory Authority Acts” which contain the following: “Regulatory Authorities are tasked with defending public safety from any and all threats.” According to generally held legal opinion, this includes fighting homelessness.
Condos in Large Cities: In Short Supply and Expensive
In Germany’s largest cities it is becoming more and more difficult to find a condominium. The number of condos on the market is in decline and prices are continuing to rise. These are the major results of Accentro’s housing ownership report, published annually and presented in DIE WELT on 30.09.2015. Sales in Germany’s largest cities were down by 3.3% compared to the previous year, totaling 128,602 condominiums. At the same time, the value of the sales was up by 3.6%, climbing to €24.9 billion. This means that the individual condominiums have risen in price by an average of 7.2%.
Upward Residential Market Trend Loses Momentum
The IMMOBILIEN ZEITUNG informed its readers on 01.10.2015 about the clear slowdown in price increases on Germany’s housing market expected over the next few years. According to HSH Nordbank’s housing market conference study, rents are forecast to rise further, but at a much decreased rate. Jan Linsin of CBRE’s negative assessment goes even further: “Apartment rents are stagnating at high levels, in individual cases we will experience declines.” In contrast, Thomas Meyer of Wertgrund called for a more differentiated assessment, particularly as apartment yields, with annualised total returns of 6% over ten years, are the leading category within the real estate sector.
Cities Raise Charges and Taxes
As reported in DIE WELT on 26.09.2015, cities and municipalities are planning on increasing taxes and charges this year and next. This was revealed via a survey carried out by the audit and financial advisory company EY. 38% of municipalities are planning to raise property and land taxes. The increases are being justified by the poor financial situation many local authorities find themselves in.
Property Transfer Tax increases have no Impact on Sales Figures
DIE WELT reported on 05.10.2015 that recent increases in property transfer tax rates appear to no clear impact on investments in real estate. Based on a survey released by Rotthege Wassermann, a corporate law firm from Düsseldorf, investors are just as keen on buying property as ever, as 80% of the survey’s 2,400 real estate industry participants testified. Despite property transfer tax rates of up to 6.5% in North-Rhine Westphalia, Schleswig-Holstein and Brandenburg, amongst others, there is still plenty of money in the market. However, the survey did reveal that private buyers have become more cautious. In contrast, there has been no loss of enthusiasm from institutional investors. Two thirds of the survey’s respondents admitted that they have attempted to avoid property transfer tax liabilities via specially structured contracts, by which they are primarily referring to share deals.
Insurance Companies Increase Real Estate Allocations
An ever growing number of insurance companies and occupational pension schemes are investing in real estate according to an article published in DIE WELT on 02.10.2015. Deals are not only being done in Germany’s top seven real estate centres, but also in small and medium-sized cities. It has become increasingly difficult to achieve adequate returns on investments in the current climate-government bonds, to give just one example, offer next to no returns at all. The results of a survey carried out by the fund analysts at Feri EuroRating Services shows that that institutional investors steadily increased their real estate allocation by more than a third between 2010 and 2014, from 6.3% to 8.3%. Germany remains an important focus for institutional investments. “The German insurance industry wants to continue investing in German real estate,” commented Dietmar Fischer from E&Y Real Estate on the results of EY’s “Real Estate Investment Trend Barometer 2015.” According to the report, even increasing interest rates would not be enough to put investors off. Nine of ten investors admitted that they have configured their investments for a long-term phase of low interest rates.
Competition for Real Estate Leads to Lower Initial Returns
The BÖRSEN ZEITUNG reported on 01.10.2015 about the extremely low initial returns generated by real estate. Investors are currently under a great deal of pressure to invest and are looking for alternatives-be they in project development or niche investments, or operator-run real estate such as hotels or logistic facilities. The margins available to those providing financing have been falling as competition has intensified. The big insurance companies are no longer just engaging in large-scale investments in the hundreds of millions.
Berlin: Greater Support for Construction of Social Housing
As the SÜDDEUTSCHE ZEITUNG reported on 09.10.2015, the construction of social housing is being incentivised: According to Andreas Geisel, Berlin’s Senator for Urban Development, state-owned housing companies will be able to choose between two alternative subsidies. They can either receive grants to help repay loans taken out to finance housing construction, as long as they agree to keep their rents at €6.50/m², or they can receive funds based on the incomes of their tenants. 2,500 subsidised apartments are to be built over the next twelve months, rising to 3,000 in 2017. “New housing construction in Berlin: The most interesting projects” is the subject of a special Real Estate Roundtable on 27 January 2016 at Berlin’s Maritim proArte Hotel. You can request details of the programme by sending an email to: info@immobilienrunde.de
Dusseldorf’s Real Estate Market Regarded Highly by Companies
The HANDELSBLATT on 06.10.2015 contained an article about the real estate market in Dusseldorf. What was until recently a weak office market has been given a considerable boost by a number of large-scale lettings. Companies such as L’Oréal, Trivago and Deutsche Telekom have announced plans to relocate to the city. In many of the city’s quarters, new office premises are being brought online in order to meet demand from companies wishing to expand within the city. Large pipeline office developments are even being planned in areas outside the central business district. As a result, vacancy rates have risen to over 10%. Foreign companies are also attracted by the city’s central location and excellent infrastructure and transport connections. According to EY, Dusseldorf is the third most attractive location in Germany for foreign companies, behind Berlin and Frankfurt am Main.
Hamburg: Mietpreisbremse Rent Cap Puts the Brake on Investment
The IMMOBILIEN ZEITUNG reported on the Mietpreisbremse rent cap and its impact on Hamburg in its 01.10.2015 edition. According to a recent survey carried out on the first 100 days since landlords became legally responsible for paying letting agent’s fees, investment in housing construction is forecast to shrink considerably in future. This is a direct consequence of the city’s new rent cap and the subsequent fall in earnings that it has caused. There are also sizeable concerns that money for modernisations and refurbishments will be in shorter supply, and that resources will need to be set aside to fight potential legal action taken by tenants. There will be a corresponding shift towards selecting more solvent tenants, which will lead to bias against welfare recipients.
High Levels of Construction Activity in Berlin
DIE WELT on 30.09.2015 and the IMMOBILIEN ZEITUNG on 01.10.2015 both reported on a study jointly released by Hochtief and bulwiengesa on Berlin’s real estate markets. According to the study, pipeline project developments through to 2019 are due to deliver around 9.1 million square metres of new floor space in Berlin. Around 75% of this new space is being created in the city’s housing sector, 20% will be office space and the remaining 5% is going to hotels. The amount of residential space planned, built and completed by project developers since 2008 has quadrupled. Although demand for new office developments is also running at high levels, housing projects have been able to pay higher prices and outbid commercial developers for parcels of development land. In no other city in Germany are so many new hotels planned as in Berlin. This is directly linked to the city’s strong tourism sector. Berlin has recorded a larger increase in overnight stays than any other city in Europe. Many of the projects, such as the new Estrel Hotel Tower in Neukölln have been planned on a large scale.
Record Year for Commercial Real Estate in Germany
A number of brokers at this year’s Expo Real expect up to €55 billion to flow into commercial real estate in Germany this year. This was reported by the HANDELSBLATT on 07.10.2015 and would represent an increase in investment of 40% and equal figures last seen in the record year 2007. The primary investors include pension funds, insurers and Asian and Arab sovereign wealth funds. As a result of shortages in supply, the experts expect the figures to slide next year: “It is unlikely that we will see investment break through the €50 billion mark in 2016,” said Fabian Klein from CBRE.
Shopping Centres: High Yield Investments for Major Investors
On 05.10.2015, DIE WELT reported that shopping centres are highly sought after by major investors, especially as a result of the prevailing low interest rate climate. During H1 2015, €24.2 billion was invested in commercial real estate in Germany, an increase of 43% over the same period a year before. A total of €9.3 billion was invested in retail real estate, including €3.1 billion spent on shopping centres. However, supply is struggling to keep pace with demand, leading to a narrowing of initial rates of return for investors. Risks for the sector include continued eCommerce growth and declining retail space productivity. Core objects within the retail real estate sector are particularly sought after by investors. A number of investors are also guided by the ABBA principle (A locations in B cities, B locations in A cities). One way of making objects more attractive for consumers is to employ innovative design elements. Success is achieved by a combination of effective management, attractive tenants and a range of other retail outlets nearby. Investors in German retail real estate do not have to fear empty shopping centres, as has been the case in the United States of America.
GERMAN REAL ESTATE NEWS
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Feri Real Estate Market Rating
The Feri Real Estate Market Rating provides a forward-looking assessment of potentials and risks for investment return on regional real estate markets. Ratings are based on detailed econometric forecasts of regional real estate markets including regional economic development. The rating currently includes more than 150 cities in Europe, in the United States and in Asia.
In this issue:
Real Estate Market Rating for Edingburgh
Edinburgh is the capital of Scotland. Because of this administrative function, the public sector accounts for an aboveaverage share of total economic activity. In addition, industry still plays an important role in the regional economy. Moreover, the service sector has become more and more important during recent years, yet this sector still has need, and scope, for further growth. Within the service sector, finance and business services as well as public services play leading roles. Engineering and research in electrical engineering are also noteworthy elements in the regional economy. Finally, tourism is another key contributor to economic activity in Edinburgh. Edinburgh trails only London as the most visited city in Great Britain.
Feri rates Edingburgh as a business location “A”, which is upgraded to the 2nd quarter 2013. It translates into “high potential, low risk”. With this rating result the city ranks 7th in the comparison of European Centers.
Office Real Estate
Regarding office real estate Feri rates Edingburgh “A”, which is unchanged compared to the 2nd quarter 2014. The city ranks 1st among office locations of European Centers. Feri awards the office top locations “A” and the side locations “A”
Edinburgh’s office space market experienced boom conditions in the years leading up to the turn of the millennium. But ever since 2001, when the first major cyclical economic downturn of the current decade set in, the formerly tight market slackened and its subsequent performance has been tepid at best. Especially in West Edinburgh, the vacancy rate rose drastically, driven by both declining demand and by additional space coming onto the market. Nevertheless, the rent decreases that occurred were not drastic. Rents for office space fell again slightly during the recent economic slowdown. But at present, the market in both the inner city and the suburbs is stabilizing, enabling office space rents to increase steadily but moderately.
Retail Real Estate
In the comparison of European Centers regarding retail real estate Edingburgh placed 17th with a rating result of “C”, which is upgraded to the 2nd quarter 2014. Feri awards the retail top locations “D” and the side locations “C”.
Edinburgh records Scotland’s highest retail space rents. In fact, retail rents here – at both top and secondary locations – are very high compared to many other European metropolises. The main shopping street is Princes Street, along with George Street, which runs parallel to it; shops in these venues sell upscale, exclusive consumer goods. In 2009 and 2010 rents trended downward at all locations due to dampened consumer spending amid cyclically weak general economic conditions. The market has recovered somewhat in recent years. Meanwhile, rents for retail space at both top and secondary locations in Edinburgh are rising moderately. Over the forecast horizon steady increases are likely.
Residential Real Estate
When it comes to residential real estate, Edingburgh placed 4th among European Centers with a rating result of “B+”, unchanged compared to the 2nd quarter 2014.
Edinburgh is one of Scotland’s most favored residential areas. Yet, in comparison to the rapid escalation of rents seen in other British regions, apartment rents in Edinburgh – for both new and existing units – showed only rather moderate increases. Nevertheless, rents in Edinburgh, as in other British regions, are high by European standards. Higherincome people working in the public sector and in finance provide a notable source of strong demand for wellequipped apartments in favored residential areas. Particularly after the expected economic recovery takes hold, apartment rents in the region are projected to rise further in coming years.
The level of residential property purchase prices in Edinburgh is the highest in Scotland. Due to the good quality of housing in the region, Edinburgh’s good economic performance, and the relatively large share of higher-income people in the local population, demand and hence purchase prices for residential property in all market segments posted some quite dramatic increases in recent years. With respect to condominiums, those in choice central locations are the ones that attract the most inquiries. Across the whole market – which has stayed fairly stable even during the present economic downturn – a key factor supporting prices is a consistently rather tight supply relative to demand. In coming years, sale prices for residential property in Edinburgh are forecast to continue rising, but at notably lower rates of increase than those posted several years ago.
Contact:
Franz Wolfgang Kubatzki, wolfgang.kubatzki@feri.de, phone +49 (0) 6172 916-38 11
Feri Real Estate Market Rating
The “Feri Real Estate Market Ratings” issued by Feri appraise the value potential of regional real estate markets, taking into account the attendant risks. The methodological approach underlying Feri Real Estate Market Ratings is rooted in the empirical observation that the performance of a given real estate market depends essentially on the economic power of the respective city. Before this background, Feri develops a separate prognostic model for each city, mapping the regional economy as a system of independent equations.
For the purpose of compiling its ratings, Feri uses a detailed regional forecast to analyse the socio-economic development, the economic structure, as well as the ten-year indicators specific to the respective real estate market. The forecast findings are evaluated using a mathematical rating algorithm.
The objective behind the ratings is to make the markets more transparent, and thereby to support pending investment decisions of private and institutional investors. Feri ratings are updated on a quarterly basis, and are currently available for 67 German cities and counties, as well as for 60 European cities outside Germany, and 45 cities in the United States.
Feri EuroRating Services AG
Feri EuroRating Services AG is a leading European rating agency, specializing in the analysis and valuation of investment markets and investment products. Feri is also a major economic research and forecasting institute. At present, Feri employs a staff of around 60 professionals to manage about 1000 customer accounts. The company is headquartered in Bad Homburg near Frankfurt, Germany, with sales offices in the United Kingdom, France, and the United States. In addition to its global industry analyses and ratings of companies, countries, capital and real estate markets, Feri regularly appraises the investment funds registered in each country. Annual market surveys on institutional and mutual funds as well as on closed-end participations provide an overview of the perspectives and actions of institutional investors. In the real estate sector, Feri conducts global real estate research, performs real estate valuations, and provides ratings of companies, REITs, real estate, real estate portfolios, and indirect real estate investments (open-end and closed-end real estate funds).
For more information on Feri EuroRating Services, please go to http://fer.feri.de/en/about-us/portrait/.
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