Revisiting Basics for Investing in Real Estate Globally

Revisiting Basics for Investing in Real Estate Globally

As real estate investors look forward to the recovery from the Covid-19 recession, we believe now is a good time to review the foundational characteristics of global property markets. In this paper, we analyze an array of country-level data that illustrates the relative attractiveness of 31 countries offering enough real estate market data for comparison. Country characteristics set the overarching environment within which local real estate markets operate. The maxim “location, location, location” starts with country. The total dollar value of property in these 31 countries was $6.1 trillion in 2019 compared with $3.4 trillion in the US alone.1


Assessing opportunity and diversification across 31 countries

Investing in property outside of one’s home country is a well-known challenge. Some investors are motivated by access to a larger pool of opportunities with attractive return potential than offered at home, and others by diversification potential related to structural characteristics such as demographics and industrial concentrations, cyclical differences associated with the timing of business cycles, and vulnerability to cyclical downturns.


Nine metrics can be used to assess both opportunity and diversification across 31 countries, which are tracked by MSCI, a leading vendor of global real estate data and performance benchmarking. The nine metrics are a first step for allocating property investments in that they illustrate the basic structural characteristics that underpin the relative attractiveness of each country for property investors.


We start with country-level analysis rather than local market analysis because “country” sets the overarching rule of law, transparency, monetary and fiscal policies, relative income and demographics. Local real estate market performance is embedded within the context of “country”. The metrics are arranged into three categories covering opportunity, risk and dynamism.


Category 1 – Opportunity metrics

1. Market size $Bn: MSCI calculation for 2019- includes both direct and indirect REIT holdings of properties intended as “investments”


2. $ Transactions > $10M: 2019 property transactions above $10 million included as an additional measure as we believe large markets with few transactions are not as attractive as those with many transactions


3. Transactions as a % of market: Ratio of transactions to market size included to show depth of transaction activity within markets



Sources: Market size – MSCI as of December 31, 2019; $ Transactions > $10M – Real Capital Analytics, Inc. as of December 31, 2019; Transactions as % of market – Aegon Asset Management as of December 31, 2019. Green shading indicates above the median. Yellow shading indicates below the median.



  • Opportunities vary widely cross the 31 countries, as shown in the range of market size from the relatively small $11 billion market in Hungary to Japan’s enormous $800+ billion market. MSCI explains that the market size metrics aggregate property that is owned by private or institutional owners, professionally managed, and held to generate income and capital returns for investors. Some of the difference in size reflects the different sizes of each country’s economy but ownership characteristics and industry composition are also important.
  • The non-US global market is dominated by seven countries that contain $350 billion or more in property assets, including the UK ($746Bn), Germany ($580Bn), France ($441Bn), China ($592Bn), Hong Kong ($378Bn), Japan ($881Bn), and Canada ($361Bn). Size of market offers only a partial indicator of opportunity; the pace of transactions completes the picture. Among the seven largest markets, transactions in 2019 amounted to a high of $90 billion for Germany to $15 billion for Hong Kong. Larger markets with abundant transactions appear to offer investors the deepest pool of opportunity.
  • In general, European countries plus Australia and New Zealand have more vibrant transactions per market size than Asian countries with the exception of South Korea.


Category 2 – Risk metrics

4. JLL Transparency Index best = 1: Risk is measured by the 2020 biennial JLL Transparency Index which has been produced by JLL for more than 20 years and is widely used as a measure of country attractiveness to commercial real estate investors. It is comprised of six components: performance measurement, market fundamentals, regulatory and legal, governance of listed vehicles, transactions process, and sustainability.


5. Rule of law rank: 2020 Rule of Law Index produced annually by the World Justice Project, and is based on eight factors: constraints on government power, absence of corruption, open government, fundamental rights, order and security, regulatory enforcement, civil justice, and criminal justice.


6. Downside deviation in GDP growth: Downside deviation in GDP growth from its country-specific mean calculated over the period 2000 to 2019. This metric shows the degree to which each country’s GDP growth has fallen short of its average over the period. It is used here as a proxy for cyclical vulnerability and reflects the industry composition of each country.



Sources: JLL Transparency Index, best = 1 and worst = 5 – JLL as of 2020; Rule of law rank – World Justice Project as of 2020. Ranking out of 126 countries and jurisdictions. Downside deviation in GDP growth – International Monetary Fund, Aegon Asset Management, 2000-2019, as of December 2019. Green shading indicates above the median. Yellow shading indicates below the median.



  • In general, transparency is better in the most highly developed countries in Europe along with Canada, Australia and New Zealand. In Asia, Hong Kong, Japan and Singapore also score high.
  • Most countries that score well on transparency also have high ranks for rule of law with the exception of Austria and Norway, which are below the median for real estate transparency but highly ranked for rule of law.
  • Transparency and rule of law determine the over-arching environment for investors; great real estate opportunities can be hard to find in less transparent countries and hard to manage when the rule of law allows corruption or bias against foreign investors in favor of locals.
  • The downside deviation in GDP growth metric is negatively correlated with real estate investment performance over the long term. This compromised return performance might reflect an association between cycle vulnerability and downside risk to both property values and liquidity. The need to liquidate quickly during a cyclical downturn can obviously compromise return.


Category 3 – Dynamism metrics

Dynamism metrics are intended here to capture each country’s relative capacity to grow and generate attractive returns for real estate investors.


7. Population 18-23 as % of total: Percent of the population in the 18-23-year-old age cohort.


8. Population growth 2015-20: Overall population growth over the 2015-2020 period.


9. GDP growth rate 2015-2019: Annual average real GDP growth 2015-2019.



Sources: Population 18-23 as % of total – United Nations and Aegon Asset Management as of 2020; Population growth 2015-2020 – United Nations as of 2020. GDP growth rate 2015-2019 – World Bank as of September 2020. Green shading indicates above the median. Yellow shading indicates below the median.



  • These three factors together indicate the long-term advantage of having young people especially as population ages along with the benefit of stronger overall population growth. Both contribute to current economic growth trends and longer-term prospects. Economic growth requires a growing labor force and innovative young people to feed the labor force. Some countries, however, have population growth and young people but lack the economic growth necessary to generate sufficient job opportunities for young people. They will have below median GDP scores with high proportions of young people.
  • European countries are less dynamic than countries outside of Europe. Generally, weak population growth and low proportions of 18-23-year old’s is associated with relatively weaker economic growth.
  • Eastern European countries including Poland, Czech Republic and Hungary are exceptions. Their history and demographics suggest that the post-Soviet transition to a market equilibrium is still underway fueled in part by out-migration.


Selecting target countries

  • An obvious technique for selecting target countries would be to focus on the countries with the most green boxes. However, this does not necessarily translate into the best real estate investment performance history as shown in Exhibit 4. Rather, such an approach would result in targeting the largest and most transparent countries such as the UK and may end up excluding up-and-coming dynamic countries.


Exhibit 4: Real estate total return % (2014-2019 annual average)


Source: MSCI, Local Currency Total Return, 2014-2019. Past performance is not indicative of future results.


  • A more nuanced approach requires that each investor weigh her or his own goals and risk appetite against the nine metrics. Some investors will value market size, transparency and rule of law more highly, while others will have more appetite for riskier countries. Some will be restricted by risk-averse investment guidelines; others will have freer rein. Some will have access to trusted local partners and rely on them to mitigate risk. Diversification goals will also play a part in deciding how broad a selection of target countries is desirable. Finally, some investors will have currency restrictions limiting their investments to certain currencies and not others.
  • Exposure to foreign currencies is an important sidebar issue when targeting countries for real estate investing. Some investors will hedge currency risk, but hedging can be expensive especially if duration-matched to long-hold real estate. Others will be allocated currency exposure by their investment committee. In any case, it is important for real estate investors to separate currency bets from real estate bets. Currency bets can be made easily and cheaply in the transparent liquid foreign exchange market. Real estate is relatively illiquid with high transaction costs; therefore, using it for currency speculation is highly inefficient.


In short, there are many considerations when investing outside of one’s home country; it is complicated. There are no target countries appropriate for all.


1MSCI. As of December 31, 2019.


This material is provided by Aegon Asset Management (Aegon AM) as general information and is intended exclusively for institutional and wholesale investors, as well as professional clients (as defined by local laws and regulation) and other Aegon AM stakeholders.


This document is for informational purposes only in connection with the marketing and advertising of products and services, and is not investment research, advice or a recommendation. It shall not constitute an offer to sell or the solicitation to buy any investment nor shall any offer of products or services be made to any person in any jurisdiction where unlawful or unauthorized. Any opinions, estimates, or forecasts expressed are the current views of the author(s) at the time of publication and are subject to change without notice. The research taken into account in this document may or may not have been used for or be consistent with all Aegon Asset Management investment strategies. References to securities, asset classes and financial markets are included for illustrative purposes only and should not be relied upon to assist or inform the making of any investment decisions.


The information contained in this material does not take into account any investor's investment objectives, particular needs, or financial situation. It should not be considered a comprehensive statement on any matter and should not be relied upon as such. Nothing in this material constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to any particular investor. Reliance upon information in this material is at the sole discretion of the recipient. Investors should consult their investment professional prior to making an investment decision. Aegon Asset Management is under no obligation, expressed or implied, to update the information contained herein. Neither Aegon Asset Management nor any of its affiliated entities are undertaking to provide impartial investment advice or give advice in a fiduciary capacity for purposes of any applicable US federal or state law or regulation. By receiving this communication, you agree with the intended purpose described above.


Past performance is not a guide to future performance. All investments contain risk and may lose value.


This document contains "forward-looking statements" which are based on Aegon AM's beliefs, as well as on a number of assumptions concerning future events, based on information currently available. These statements involve certain risks, uncertainties and assumptions which are difficult to predict. Consequently, such statements cannot be guarantees of future performance, and actual outcomes and returns may differ materially from statements set forth herein.


The following Aegon affiliates are collectively referred to herein as Aegon Asset Management: Aegon USA Investment Management, LLC (Aegon AM US), Aegon USA Realty Advisors, LLC (Aegon RA), Aegon Asset Management UK plc (Aegon AM UK), and Aegon Investment Management B.V. (Aegon AM NL). Each of these Aegon Asset Management entities is a wholly owned subsidiary of Aegon N.V.


Aegon AM UK is authorized and regulated by the Financial Conduct Authority (FRN: 144267) and is additionally a registered investment adviser with the United States (US) Securities and Exchange Commission (SEC). Aegon AM US and Aegon RA are both US SEC registered investment advisers. Aegon AM US is also registered as a Commodity Trading Advisor (CTA) with the Commodity Futures Trading Commission (CFTC) and is a member of the National Futures Association (NFA). Aegon AM NL is registered with the Netherlands Authority for the Financial Markets as a licensed fund management company and on the basis of its fund management license is also authorized to provide individual portfolio management and advisory services in certain jurisdictions. Aegon AM NL has also entered into a participating affiliate arrangement with Aegon AM US.


©2020 Aegon Asset Management. All rights reserved.


AdTrax: 3245960.1GBL
Exp Date: September 30, 2022


(113KB) PDF

Martha Peyton, PhD

Managing Director of Real Assets Applied Research

Martha Peyton, PhD, is managing director of Applied Research for Aegon Real Assets US primarily responsible for the development and application of research to real asset strategies.

More about the author

Read next