A study carried out by McKinsey Global Institute places brick as the asset of choice for different economic agents. Compared to other assets, the property continues to be the asset most present in global equity.
It is curious that in the 21st century, among so many assets and investment options, brick continues to be the favorite asset of the main economic agents. In other words, I am struck by the fact that “the brick”, which is what economists have called the real estate sector our entire lives – what the Americans and British call “real estate” – continues to be the asset of choice for all. economic agents all over the planet; And we must know that we are not only talking about investors.
Households, Governments, banks, non-financial corporations, as well as all those agents that operate in an economy, today have a majority of their assets in the real estate market. Although we have thousands and thousands of Bitcoin fans talking about the cryptocurrency revolution; to fans of globalization and international markets; Despite the fact that we have the FANG at maximums since there is a man named Musk who continues to attract thousands and thousands of small investors, despite all this, the data seems to indicate that the home and, in general, the property has never lost its attractiveness.
To say this, obviously, we have used a study, which has been carried out by the McKinsey company, specifically by its study center, the McKinsey Global Institute. In this study, the consulting firm adds the balance sheets of 10 countries that are equivalent to more than 60% of the income worldwide. In this sense, it tries to achieve a representative sample of those most powerful countries with the greatest heritage. These 10 countries analyzed are Australia, China, the United States, Canada, France, Germany, Japan, Mexico, Sweden, and the United Kingdom.
As if it were a company, the situation of the main agents has been analyzed, seeing how their balance sheet would be divided into assets, liabilities and net worth. This done, the study, which is titled: “The rise and moment of the global balance sheet,” shows how the planet continues to want real estate, as shown by its balance sheet. Well, we can really like the Facebook projects and the metaverse, the Google glasses or the electric cars of the friend Elon Musk, but that does not mean that intangible assets, for example, do not represent even 4% of the analyzed net worth.
The brick: the preferred asset
“In general, non-real estate assets, which are all those that are not real estate, are a small part of net worth. And this, with the exception of China and Japan, is happening all over the world. “
I’m not going to beat around the bush.
If we go to the McKinsey study, what we observe is that taking into account the balance sheet of these agents, more than two thirds of the net worth of these 10 countries is concentrated in real estate assets of all kinds, including residential, corporate and governmental. In other words, more than 60% of the net worth of these 10 economies – 60% of global income, let us remember – is equivalent to homes, office buildings, Governments and the Administration, among others.
As we said, intangibles in the era of digitization, the internet, branding, as well as all these concepts closely related to what is considered an “intangible good”, do not represent more than 4% of this heritage. In general, non-real estate assets, which are all those that are not real estate, are a small part of net worth. And this, with the exception of China and Japan, is happening all over the world.
Many, having said that, will say the typical thing that the trend is changing over the years, that the brick is less profitable than the stock market and blablabla. And yes, you are right. But the truth is that the weight of real estate assets is not only not falling in what would be the net worth, but also it continues to widen, making brick the preferred asset worldwide.
Why the brick?
“To get an idea of what I am saying, the truth is that house prices have tripled in the 10 countries analyzed.”
Thus, the question we ask ourselves at this point is: why the brick?
And the fact is that the data, as I said, APPEARS to indicate that brick is the most desired asset, but what I am commenting on has some nuances that the aforementioned study, too, reels off perfectly.
With that said, let’s see!
To understand what we are going to explain, it should be noted that the value of real estate has grown notably over time, since it is estimated that, due to the fact that we have lived in an environment of very low interest rates, the price of assets , especially that of real estate, has grown substantially.
To get an idea of what I am talking about, the rise has been so intense and the rate so above the economy was that relating the value of these assets to income, what we see is that, on average, the value of these assets it has increased by almost 50% compared to the relationship shown by other generations.
If we look and compare how other assets on the balance sheet have appreciated, they have not grown at the rate that real estate assets have. For this reason, we must know that due to effects, such as the composition effect, if the value of real estate assets grows above the value of other assets, their relative weight in the balance sheet continues to grow, despite the fact that more properties are not being acquired. And we must know that the value of real estate, in many areas of the world, has grown exponentially.
In short, there is nothing like data, and the data tells us that house prices have tripled in the 10 countries analyzed. A sign that could indicate that the property, despite being the predominant asset, is not because it is the most demanded at the moment, but because of a value that does not stop growing, and at a higher rate than the economy, let us remember.
Next I explain the rise in property prices and an interesting fact about intangibles that supports the hypothesis raised precisely in the lines above. But if you are not interested in this point, you can go directly to the final point, where we will conclude this story.
Supply and demand: two sides of the same coin
If you are reading this, I have managed to capture your attention, so I will be brief so as not to bore you.
The housing problem is a problem, mainly, of supply and demand that the rulers do not know how to deal with.
First of all we have to demand. In other words, to buyers. In this sense, a low interest rate environment has allowed many people to buy a property. In other words, many people have decided to buy a home, so the demand for homes has continued to grow over time. And it is that who would not want to buy a home in an environment in which interest rates are closer to zero than ever.
But in the face of a growing demand, we cannot forget the supply.
And it is that the policies applied with regard to construction, the restricted supply of land, zoning problems, as well as overregulated housing markets; And all this, in order to achieve sustainable growth after the 2008 crisis, has ended up causing the demand for housing to grow above the supply available in the market. In other words, there were and are more buyers who want to buy a home than sellers.
Therefore, we are facing a situation that has caused prices to skyrocket, and that gives us those clues to know why its weight in the balance is growing. On the one hand, we have a demand that has been greatly stimulated by a low interest rate environment that did not feed business investment either. At the same time, on the other hand, we have a scarce supply, which continues to be scarce despite the fact that the problem is known.
Intangible assets: a very ephemeral accounting asset
And to all this, and very briefly, we can add a comment on intangibles, since it is squeaking that in the middle of the digital age, only 4% of net worth is concentrated in assets. In general, we would expect more from these types of assets considering that we are talking about brands that are worth trillions of dollars, such as Apple.
But it should be noted at this point that the consultants who carry out the report show how the value of intangible assets, at the accounting level, decreases rapidly due to obsolescence and competition, which causes their weight to be rapidly reduced on the balance sheet, as its value is reduced.
Will the trend continue in the future?
“Be that as it may, what we see in this analysis is that brick is still the desired asset, but the nuances tell us that it is not precisely because young people continue to invest in it.”
Although we are talking about the asset preferred by all economic agents, as we have seen previously, this statement has its nuances. And it is that in addition to being the oldest asset, so to speak, that exists, we are talking about an asset that has gained a lot of weight in the balance sheet due to how these types of assets have revalued over time. Well, we have already seen in the supply and demand analysis, in addition, that it has not been because they have continued to massively acquire homes and real estate assets in general.
Likewise, we have to take into account the situation that young people live on the planet, since many of them find themselves in a difficult situation, in many situations without the possibility of accessing a mortgage. Taking this into account, as well as the fact that young people are less and less owners of real estate assets every day, we could speak of a trend that could be reversed. In this sense, young people could give less value to a home and invest in another series of assets, while governments and companies redirect their investment towards more productive sectors.
Be that as it may, what we see in this analysis is that brick is still the desired asset, but the nuances indicate that it is not precisely due to young people continuing to invest in it, but to a series of factors, among which we can highlight the malfunctioning of a real estate market that has shot prices above the economy; to a precarious labor market that prevents young people from creating wealth; incorrect legislation on the housing market and urban planning, as well as other factors that, in one way or another, hold the brick at the top of the ranking.
Therefore, we could highlight the benefits of investing in this type of asset, but at this price, we are talking about a problem rather than a fact to celebrate.