NCB Capitaltouts real estate during instability
Stockbroker and investment banker NCB Capital Markets sees real estate as a haven during periods of conflict and instability, arguing that it could beat the returns of stocks and bonds.
The wealth manager is not restricting this real estate market view to personal and commercial properties, but extends it to infrastructure and commodities, arguing that while luxury real estate may have found its peak, middle-income housing remains largely underserved, with potential upside.
“We recommended exposure to real assets, including real estate, as a hedge against inflation,” Annya Walker, NCB Capital’s vice-president of strategy, research innovation and projects, told the Financial Gleaner on Wednesday.
“Geopolitical conflicts, rising energy prices, global supply chain challenges, and high inflation expectations have led to an elevated inflation environment and aggressive monetary tightening, which has led to increased volatility among traditional assets. However, real assets have historically proven to be natural hedges against inflation and tend to outperform during inflation surges,” NCB Capital noted in a letter to investors this week.
NCB Capital cited data it said was from one of the world’s largest hedge funds, United States-based BlackRock, that compared the performance of stocks and bonds to real assets such as “real estate, infrastructure and commodities”. In its assessment of average annual returns in different regimes of growth and inflation over the 20 years between 2001 to 2020, BlackRock found that US and global real estate, as well as global infrastructure, beat stocks and bonds when inflation is high, whether the inflation is accompanied by high or low growth, according to the NCB Capital analysis.
“Some real assets such as infrastructure-related industries tend to be more defensive and less sensitive to the broader economy and, as such, maintain steady demand for the essential services that they provide. Others, such as real estate and commodities, are more sensitive to growth and pricing dynamics, which allow them to benefit from rises in inflation. This makes these and other real assets, good additions to portfolios to hedge against inflation, protect investors,” NCB Capital said.
Walker added, in her comments to the Financial Gleaner, that local data was not easy to come by for the real estate market, a fact that led the company to use data provided by BlackRock.
Homes in affluent areas were generally hovering at the $50-million mark before the pandemic. Now they are trending towards $100-million due to price appreciation, based on checks on the MLS, a sector-wide site for realtor listings.
“While there is an oversupply of housing in the high-end market locally, the segment for residences priced below $25 million and in previously underserved areas continue to see high demand,” according to NCB Capital.
NCB Capital added that rental rates did not jump during the pandemic, despite rising real estate asset values and purchases. That, however, could change with the increased activity in the economy, the company noted. There are also opportunities in commercial and industrial real estate arising from shipping delays which led some manufacturers to increase inventory, thereby requiring additional storage, according to NCB Capital.