The value of global real estate assets totalled around $217 trillion (Dh797 trillion) this time last year, Savills World Research. Global asset price inflation has increased this figure to $228 trillion at constant prices, rising by 5 per cent in real terms.

When compared with other assets, global real estate comes out more valuable by a significant margin. Global stocks, shares and securitised-debt combine to $170 trillion, while the value of all gold ever mined throughout history pales into even greater insignificance at $6.5 trillion.

World GDP grew by 2.3 per cent at constant prices in 2015-16, so the world’s real estate asset values have grown faster than its income. This means that the world now owns real estate assets worth 2.8 times its annual income or GDP. This real estate asset-to-income ratio has increased from 2.7 in 2015.

Meanwhile, commercial real estate also grew faster in value at 7 per cent than residential, which grew 5 per cent, over the year. This growth has been much faster than global bonds, but slower than global equities, which increased in value by 9 per cent between the end of 2015 and the end of 2016.

Residential dominates

Residential property is valued $168.5 trillion, making up three quarters of all real estate stock. With around 2.05 billion households in the world, this means the average home is valued at around $82,000, but the value is concentrated in developed countries, chiefly in North America and Europe.

North America contains only 7 per cent of the global population, but 22 per cent of all residential property assets by value. Europe tells a similar story, containing 11 per cent of the world population but 23 per cent of residential property by value.

The greatest growth potential is in less developed economies. Much of Asia has already seen real estate asset price growth as GDP per head has grown. But Africa appears to have the greatest potential yet for value growth as national economies and household incomes increase. The Middle East and Africa (MEA) currently contains 19 per cent of the world population, but residential property is only worth 6 per cent of the global total.

GCC

GCC countries represent 27 per cent of all residential and commercial real estate value in the Middle East and North Africa, although only 13 per cent its population. The UAE alone holds 10 per cent of the real estate value and Saudi Arabia 11 per cent. The rest of the GCC countries have small total values by comparison to the rest of the region as populations are smaller.

“The heavy weight of the UAE’s total real estate value in the GCC and Mena reflects the remarkable growth and transformation of its economy, which is one of the most diversified in the region,” says David Godchaux, CEO of Core Savills.

Because most of the world’s households are homeowners, the study estimates that only 34 per cent of all world residential property is investable – capable of being let to occupants and traded between investors.

Commercial, agricultural and forestry

The proportion of commercial property that is investable is higher at 67 per cent, but even in this sector, there are a large number of individuals, companies and organisations that own and occupy their own buildings.

The greatest real estate asset price growth has been in the commercial sector, which stands 7 per cent higher than it did last year. Commercial real estate totals $32.3 trillion in value, of which $21.8 trillion is classed as investable.

“We estimate that 58 per cent of all investable Commercial real estate in the MEA is in the GCC countries,” says Godchaux.

Agricultural land, farms, estates and forestry total $27.2 trillion – an increase of 5 per cent on last year’s figure. In this sector, 30 per cent operate and farm without third-party investors owning the land.

Dubai

Godchaux says Dubai differs from many other global cities as it is at different stage of its real estate cycle. “Unlike most other mature markets around the world, where residential property yields have steadily decreased since 2010, leaving little margin for short-term capital appreciation, there still is significant room for yield compression in Dubai’s residential market, through rental decrease and price appreciation,” he says. “In Dubai, the significant demand for rentals that was witnessed prior to 2014 is not back yet. Some tenants left the country for good, leaving a gap to fill the growing supply, while others shifted to home ownership, adding upward pressure on prices, at the same time as downward pressure on rents.”

According to a Core Savills report, a recovery in rental levels across most of the residential sub-markets is unlikely this year, although it noted that new employment figures are expected to determine the timing and amplitude of recovery. “We foresee a potential increase in rents in 2018 as structural improvements in the employment market in the run-up to Expo 2020 and an improved macroeconomic environment are anticipated to bring new occupier demand that is likely to feed the pool of renters rather than end user buyers.”