Real estate assets: Bottoming out ⁴

Price trends varied across individual markets (Figure 24). The relatively sharp rise in North America, for example, is striking. Paradoxically, this is likely to be a consequence of higher interest rates: many homeowners are reluctant to sell their homes because they would lose their old, cheaper mortgage. The result is a significant shortage of supply, which supports prices despite weak demand. This logic does not apply in Western Europe, however, where prices are hardly moving. In some markets, such as France and Germany, prices are falling across the board. In Japan, however, real estate prices are rising more strongly than they have in a long time – another sign that the deflationary years are behind Japan. Real estate markets in Australia and New Zealand, as well as in Eastern Europe, seem immune to all interest rate turbulence and continue to rise steadily.

As with the analysis of financial assets, we examine the development of real estate assets per capita, adjusted for inflation (Figure 25). In the long term, the consequences of the bursting of the real estate bubble in the 1990s and Japan's declining population are still clear: The decline in prices has resulted in real losses for Japanese real estate owners on average over the last 20 years. In the other three regions examined here, long-term returns are positive, albeit relatively low – especially compared with the development of financial assets (Figure 6), which have a consistently higher real growth rate. In North America, this gap was almost 1.5pps per year, and in Australia/New Zealand and Western Europe, it was just under 0.5pp per year. However, this is consistent with research indicating modest long-term capital gains of approximately +1% per year for real estate, as opposed to equities.⁵

In the ranking of countries with the highest real estate assets, Switzerland (EUR330,800) is ahead of both Australia (EUR273,440) and the US (EUR195,200). But what does the ranking look like when net financial assets and real estate assets are presented together? Figure 26 provides the answer. There are three significant shifts: Australia (+7 places) is the clear winner, while Sweden (-6 places) and Japan (-8 places) are the losers. For the other markets, however, the changes are minimal. For instance, Switzerland has overtaken the US to take the top spot, and Germany has climbed to 10th place (+2).