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Safe bet? Sovereign funds rethink once-reliable real estate – The Guardian

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By Tom Arnold

LONDON (Reuters) – The COVID-19 pandemic has forced sovereign wealth funds to think the previously unthinkable.

With prime office blocks lying empty around the world, hotels half-vacant and retailers struggling to stay afloat, the funds are retreating from many of the real estate investments that have long been a mainstay of their strategies.

Sovereign wealth funds (SWFs) invested $4.4 billion in the sector in the first seven months of 2020, 65% down from the same period a year ago, according to previously unpublished data provided to Reuters by Global SWF, an industry data specialist.

The nature of property investments is also shifting, with funds increasingly investing in logistics space, such as warehousing, amid a boom in online commerce during the pandemic, while cutting back on deals for offices and retail buildings.

Such shifts in behaviour can have seismic effects on the global real estate market, given such funds are among the largest investors in property and have interests worth hundreds of billions of dollars in total. Three sovereign funds sit within the top 10 largest real estate investors, according to market specialists IPE Real Assets.

A big question is whether the changes are structural for the funds, for which property is an asset-class staple at about 8% of their total portfolios on average, or a temporary response to a huge, unexpected and unfamiliar global event.

“Real estate is still a big part of sovereign wealth fund portfolios and will continue to be so,” said Diego López, managing director of Global SWF and a former sovereign wealth fund adviser at PwC.

“What COVID has accelerated is the sophistication of SWFs trying to build diversification and resilience into their portfolio – and hence looking for other asset classes and industries.”

Sovereign funds have been more bearish on property than public pension funds, another big investor in the sector, Global SWF found. While they have outstripped the pension funds in overall investment across most industries and assets this year, by two to one, that ratio is reversed for real estate.

For a graphic on Sovereign wealth fund property holdings:

https://graphics.reuters.com/SWF-REALESTATE/dgkpllmyopb/chart.png

FUTURE OF THE OFFICE

Funds are nursing hits to their existing property portfolios stemming from the introduction of lockdowns and social-distancing restrictions. While other parts of their portfolio, such as stocks and bonds, have rebounded from March’s trough, a real-estate recovery is less assured.

Property capital value globally is expected to drop by 14% in 2020 before rising by 3.4% in 2021, according to commercial real estate services group CBRE. Analysts and academics question whether the pandemic’s impact may prove long-lasting, with more people working from home and shopping online.

“I think there’s a real threat to some commercial business districts in the big cities as I can’t see us all return to the 9-to-5 schlep in, schlep out,” said Yolande Barnes, a real-estate specialist at London university UCL.

The value of property assets of some funds has fallen in 2020, with those experiencing the biggest drops including Singapore’s Temasek Holdings and GIC, Abu Dhabi Investment Authority (ADIA) and Qatar Investment Authority (QIA), according to data compiled for Reuters by industry tracker Preqin.

Those four funds have collectively seen the value of such assets drop by $18.1 billion to $132.9 billion, the data showed.

Reuters was unable to confirm whether the fall was due to lower valuations or asset sales. The funds either declined to comment or did not respond.

Many sovereign funds do not publicly disclose data on property investments, with Norway’s one of the exceptions.

The Norwegian fund, which has around $49 billion invested in real estate, up from $47 billion at the end of 2019, said last week its unlisted property portfolio returned minus 1.6% in the first half of 2020.

Sovereign funds have also largely steered clear in 2020 of new direct investments in London or Los Angeles, hotspots in normal times, according to property services firm Jones Lang LaSalle (JLL), which said SWFs were “on the defensive”.

LOGISTICS AND BIOTECH

The funds’ advance in logistics properties, such as warehousing and goods distribution centres, comes at a time of high demand as people have bought everything from toilet paper to trainers from home during lockdowns.

So far this year, logistics have accounted for about 22% of funds’ real-estate investments by value, compared with 15% in 2019 as a whole, the Global SWF data shows.

Meanwhile, investments in offices have fallen to 36% from 49% last year, and in retail property to zero versus 15%.

Marcus Frampton, chief investment officer at the Alaska Permanent Fund Corporation (APFC), told Reuters that real-estate deal volumes had “slowed down substantially” in general, but that, anecdotally, he saw activity in industrial facilities like logistics and “multi-family” apartment blocks.

The wealth fund’s holdings have risen to $4.7 billion, up from $4 billion at the end of June, after the purchase of multi-family and industrial REIT stocks on July 1, Frampton said.

“Commercial warehouse activity is strong,” he added.

In a sign of the times, Temasek participated in a $500 million investment in Indonesia-based e-commerce firm Tokopedia in June.

In contrast, physical retail, a significant part of many funds’ holdings, has been hit hard. QIA-owned luxury retailer Harrods in London has reportedly forecast a 45% plunge in annual sales, as visitor numbers plummet. Many other retailers have sought to renegotiate rents.

The outlook appears brighter for some fledgling sectors such as biotech, which has come to the fore during the pandemic.

“We have seen significant demand for life sciences space. That’s ranged from office to specialist lab and warehouse space,” said Alistair Meadows, JLL’s head of UK capital markets.

For a graphic on Sovereign wealth fund real estate deals:

https://graphics.reuters.com/SWF-REALESTATE/oakpeogkmpr/chart.png

DISTRESSED OPPORTUNITIES

The U.S. office market is expected to face its first year since 2009 of more space becoming vacant than leased, according to CBRE.

Still, investors are betting on a rebound of sorts in some quarters. For example, Canary Wharf Group, partly owned by the QIA, unveiled plans last month for a large new mixed-use development, including business space, in London’s financial district.

And while hotels face huge challenges, occupancy rates are expected to rebound near to pre-COVID levels – but not until the end of 2021.

The Libyan Investment Authority has experienced problems with the operating expenses of some of its properties, including some hotels in Africa owned by its subsidiary, Chairman Ali Mahmoud Hassan Mohamed told Reuters.

But it remains committed to its real-estate portfolio, estimated at $6.6 billion in its latest valuation in 2012, as it was able to restore its value, he said.

Crises can also present opportunities, however.

In the aftermath of the pandemic, some funds may look for bargains as distressed properties emerge.

The Hong Kong Monetary Authority, which operates a fund, told Reuters it would “closely monitor market conditions with a view to capturing appropriate opportunities”.

And in an uncertain world, some academics argue that property remains a solid bet for savvy investors.

Barnes of UCL said sovereign funds could be “lighter on their feet” than some other institutional funds and more able to adjust their behaviour to suit changing circumstances.

“Real estate is one of the better sectors to be in, in a world of turmoil,” she added. “But it’s very much about picking the right real estate.”

(Reporting by Tom Arnold in London; Additional reporting by Alun John in Hong Kong, Gwladys Fouche in Oslo, Saeed Azhar in Dubai and Anshuman Daga in Singapore; Editing by Pravin Char)

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Canadian Real Estate: Hottest Recreational Markets | RE/MAX Canada – RE/MAX News

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For years, the Canadian real estate market has been dominated by a handful of cities, such as Toronto, Vancouver and Montreal. Everyone wanted to live in these red-hot markets – and for a good reason. These urban centres have everything you would want, from arts and entertainment to a diverse range of amenities. Then, of course, the coronavirus pandemic happened, and it turned everything upside down, including the dominant trends within the Canadian real estate market.

Who would have predicted at the start of 2020 that big city dwellers would be fleeing these metropolises to live in rural areas? This is one of the trends unfolding in the fallout of the COVID-19 public health crisis. With more Canadian businesses embracing work-from-home policies, many people are taking advantage of the opportunity to relocate to cottage country. As such, small cottage country towns are becoming attractive destinations for homebuyers.

Whether you are ready to pack up and leave your city-living days behind, or you’re looking for your next big investment opportunity, here’s what you need to know about some of the hottest markets in Canadian cottage country.

Canadian Real Estate: The Hottest Markets Across Cottage Country

#1 Kawartha Lakes, Ontario

The Kawartha Lakes has long been a getaway target for Torontonians since it is roughly a 90-minute drive from the heart of the city. The region is mostly known for its cottage vacations, but it offers a diverse array of activities and sights, including horseback riding, boating, hiking trails, golf, and so much more. Plus, you can access the Trans Canada Trail and Ferris Provincial Park. Now that the pandemic has altered buying trends, Kawartha is turning into an all-season home for many city dwellers.

According to the Kawartha Lakes Real Estate Association (KLREA), residential home sales surged 39.5 per cent in July. Home prices rose 3.8 per cent to a record high of $480,164. Since Kawartha is becoming a top destination for homeowners in the Greater Toronto Area (GTA), there has been a surge in demand, but supply has been unable to keep up, which has turned the municipality into a seller’s market.

#2 Muskoka Lakes, Ontario

Like the Kawarthas, Muskoka is at the top of the list of most popular cottage country destinations. And, like the Kawarthas, Muskoka provides so much more than an idyllic getaway. From Gravenhurst to Bracebridge, you can relish in great seasonal festivals, hiking, wineries, and art galleries, all year long.

The Lakelands Association of REALTORS® reported a 29.8-per-cent jump in non-waterfront residential sales and a 64.2-per-cent spike in waterfront sales in July. Prices within Muskoka have also popped: 15.5 per cent for non-waterfront properties ($385,250) and 21.5 per cent for waterfront housing ($675,000). The housing supply in Muskoka remains low, but the demand continues to rise, resulting in a seller’s market.

#3 Gulf Islands, British Columbia

If you desire to be on the west coast, consider the Gulf Islands in British Columbia. This has long been a much-desired cottage destination, mainly for its five major islands (Pender, Galiano, Mayne, Salt Spring and Saturna). Although the Gulf Islands are appealing due to the fact that you can choose to disconnect, or you can still stay connected to the outside world with frequent B.C. Ferries, water taxis and private boats.

The Gulf Islands have been steadily rising for several years now, and real estate agents in British Columbia say that the region could attract even more interest in the months to come. Over the last year, prices have risen as much as 41.61 per cent. Since 2015, prices have gone up as much as 132.7 per cent!

#4 Eastern Townships, Quebec

For years, people have rented cottages for their chalet-style getaways in Eastern Townships. The Quebec region has 89 municipalities, including Magog, Sherbrooke and Coaticook. In addition to being surrounded by nature, the southeastern Quebec region has plenty of gourmet wine facilities, spas, golf courses, and winter sports, as well as more than a dozen national and regional parks that can be enjoyed year-round.

Data from the Quebec Professional Association of Real Estate Brokers suggest transactions climbed as much as 20 per cent in this region. Prices above the $500,000 level are also the new norm, and experts forecast that prices will continue to go up amid more Montrealers fleeing to the suburbs.

#5 Frontenac County, Ontario

Frontenac County is a three-hour drive from Toronto, sandwiched between Kingston and Ottawa. It would be easy to surmise that Frontenac is attracting mostly Torontonians, but the urban flight trend is bringing people from large cities across Ontario. The main problem is that affordable all-season cottages do not stay on the market long, especially those priced below $500,000.

In July, Kingston and its surrounding areas witnessed a new sales record, rising 35.8 per cent from the same period last year, says Kingston and Area Real Estate Association (KAREA). The average price of homes sold was an astounding $458,026, which was up 15.2 per cent from July 2019.

Earlier this spring, many cottage country mayors discouraged urbanites from leaving their big cities to come to these small towns for fear of spreading the highly infectious respiratory illness. But these warnings might not have been enough for city dwellers searching for vacation homes or all-season cottages. As people from the nation’s largest cities seek less densely populated communities, cottage country destinations nationwide can anticipate a massive boom – and this could last all year long for many of these rural regions. For realtors within these small communities, perhaps the fiercely competitive bidding wars commonplace in Toronto and Vancouver’s real estate transactions, will become the new norm in 2021.  Stranger things – like for example, a global pandemic and killer hornets – have happened.

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LOTR – The Land Owner Transparency Registry – Real Estate and Construction – Canada – Mondaq News Alerts

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Canada:

LOTR – The Land Owner Transparency Registry

To print this article, all you need is to be registered or login on Mondaq.com.

In an effort to increase disclosure of the ownership of real
estate in B.C., the Land Owner Transparency Act (“LOTA”)
received royal asset and will be in force as soon as regulations
are prescribed. The Land
Title and Survey Authority of B.C.
is advising that the Land
Owner Transparency Registry (“LOTR”) will be launched
soon – as early as this Fall. Once launched,
transferees will be required to file a “transparency
declaration” which will be stored in LOTR, a searchable public
registry
with information about indirect ownership interests in
land.

But what does that disclosure look like?

Who must disclose?

  1. “Reporting bodies,”
    generally including:

    • Trusts
    • Partnerships
    • Corporations
  1. “Individual interest
    holders,” generally including

    • Trust beneficiaries
    • Partners in a partnership
    • Corporate interest holder of at least
      10% of outstanding shares or voting rights. (Confusingly, this is
      different than the requirements under Property Transfer Tax Returns
      and under the new
      Business Corporations Amendment Act
      )

When to disclose?

  • Upon registering a legal interest in
    land in the Land Title Office;
  • If there is a change in interest
    holder(s);
  • A reporting body discovers an
    inaccurate filling;
  • A reporting body is a pre-existing
    owner when LOTA comes into force; and
  • A registered owner ceases to be a
    relevant reporting body.

It’s also recommended that you obtain additional
advice

in these scenarios
.

What to disclose?

  • A transparency
    declaration
    indicating if you are a reporting body and
    what type.
  • Reporting Bodies must also file a
    transparency report disclosing the following
    information:

    • Corporations: name, registered
      address and head office address, jurisdiction of incorporation or
      continuation, incorporation number and business number
    • Trusts: information regarding
      the trustee and settlor corresponding to certain information
      required for individual interest holders
    • Partnerships:
      partnership’s business name, type of partnership, registered
      address or head office address, address of principal business
      premises, jurisdiction of organization, and identification number
      and business number
  • Individual interest holders of
    the relevant reporting body must disclose:
  • Full name, date of birth, SIN, tax
    number, principal residence and last known address;
  • Residency and citizenship status;
    and
  • Date on which one became or ceased to
    be an interest holder and the nature of the individual’s
    interest in the reporting body.

As noted above, these disclosure requirements are confusingly
similar to, but different from:

  • The B.C. private companies
    Transparency Register (FAQs
    here
    )
  • Property Transfer Tax Requirements
    (PTT Return Guide
    here
    ; additional info
    here
    )
  • B.C. Law Society Client
    Identification and Verification Requirements (Details
    here
    )

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

POPULAR ARTICLES ON: Real Estate and Construction from Canada

Your Second Home – Principal Residence Exemption

Minden Gross LLP

From what I have read, the demand for cottage properties has soared during COVID. City folk are eager to get out of the city for a change of scenery, especially since many people are still working from home.

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What's unique to this hardened real estate insurance market – Canadian Underwriter

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At the same time insurers have a reduced appetite to take on real estate risks, real estate developers during a pandemic-induced economic recession have an aversion to investing a lot of money into risk-reduction measures. These twin dynamics are a recipe for a long and arduous hard market in real estate insurance lines, according to a real estate insurance expert.

“What we’re facing right now is a circumstance where there is less and less appetite to take on the broader and wider risk,” said Jeff Charles, managing director for Gallagher. “That’s the whole supply-and-demand issue that the market is facing. And then there is the multi-year accumulation of attritional losses compounded by cat losses. And it’s a zero per cent interest rate environment. The insurance companies are on their heels with where they can be profitable, and that is driving the focus on their underwriting.”

Carriers are looking for more information about risks associated with where developers are building, primarily in areas with a high flood risk, Charles observed. Absent the right amount of information, it’s easier for companies to say they’re going to pass on an application. “’It doesn’t suit our profile and we don’t have enough information,’” said Charles, reciting what brokers are hearing insurance companies say. “That’s becoming more common and, arguably, appropriate.”

iStock.com/BeeBright

Broker conversations with clients are now shifting, Charles said. Clients will be asked if they’re willing to fork over the money and take on the increased costs to transfer the risks to insurance. Or they have the option to do something different, like take that money and invest in actions to mitigate risks and be pro-active.

There’s no straightforward path for clients to take in this environment, Charles told Canadian Underwriter. He finds the market “fascinating,” since one developer will see things differently from another.

When asked if the aversion to investing in risk mitigation would mean a day of reckoning was coming, Charles said it’s already here.

“The reckoning is starting,” he said. “But what’s particularly unique about this [hardening market in real estate] is that as long as we continue to operate in this low interest rate environment, and insurers are restricted in how they generate their income — they’re playing with one arm tied behind their back with the investment returns — that’s going to leave a continued focus on underwriting profitability and potential reliance on generating the majority of their returns to shareholders from their underwriting profitability.”

Related: COVID-19 compounds ongoing real estate insurance challenges

In other words, insurers have to make better decisions about the risks to which they are deploying capacity, and how much premium they’re going to charge. “We’ve started to see price move and we’re starting to see limitations on terms and conditions,” Charles said.

This is not just a Canada-only problem, he pointed out. The same issues are playing out around the world. Compared to other countries, Canadian flood risk may be small potatoes for global insurers who operate in Canada.

“What’s missing from this conversation is the reinsurance conversation,” Charles said. “What kind of price increases is the insurance company seeing. And what’s the driving impact to the end-user of that cost of reinsurance? That’s where you see…the tolerance to take on additional water issues is being tightened fastest.”

Feature image by iStock.com/Warchi

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