Viewpoint – More from multifamily?
Investment into US multifamily properties has long been a favourite of Islamic investors, and for good reason it would seem, with Newmark reporting a 20% total return for this sector in the 12 months to the end of March, driven by valuation increases.
While it is tempting to suggest that such growth cannot continue and will start to reduce, and indeed should the US economy hit a rough patch then residential of all sorts will no doubt be impacted, there are signs that this may not occur.
With recent US interest rate increases, for the first time in recent years the average monthly mortgage payment is higher than the average monthly rental payment. For the would-be buyer considering whether to do so or continue renting, this will start to have an impact, as will the ever-increasing deposit needed as the price of homes to purchase continues its ascent.
The Economist recently conducted some fascinating research into what is driving local changes in house prices, providing more detail in its analysis than a perception that everyone in the US has moved to Florida and Texas.
The Economist’s findings were that population density was a major factor in determining price changes, with occupiers seeking less crowding and more space, particularly as hybrid working becomes the new norm. But this was largely seen in city dwellers favouring the suburbs rather than the rural existence beyond, with the relative ease of their commute into town two or three times a week being factored in.
And weather was also important, with avoiding a freezing winter being more important than maxing out on the summer temperature. In short, hybrid working is encouraging everyone to seek a better quality of life, but this is not necessarily a relocation south and east, with the Pacific coast states seeing strong price increases as well.
With US$63 billion of multifamily transactions between January and March this year, Newmark reported that this is the highest first quarter figure for more than 20 years, suggesting that investors are still feeling the love for the sector, even with interest rate increases. For while Qatar First Bank recently exited its Baltimore residential building, little doubt having performed very well over its five years of ownership, there are plenty more looking to enter or build their exposure to this sector.
My advice is to keep an open mind with respect to location; the US (to state the obvious) is a huge country, and my recent visit to Los Angeles confirmed that it is not a ghost town.
Written by Philip Churchill, first published in Islamic Finance news Volume 19, Issue 24 dated 15th June 2022.