Emerging Markets / August 23, 2018

Real Estate Trends and Agribusiness Investments

Real Estate represents one of the oldest and most traditional investment mechanisms in free market societies. For instance, in a country like the United States, home ownership represents for many an essential economic aspiration as well as financial security and stability. More specifically, for the working and middle classes of industrialized countries, real estate ownership is the fruit of decades of financial discipline through which the family home has become the most important asset for the members of the household. However, in North America, this trend has changed noticeably throughout the last decade for a variety of reasons.

Real Estate Trends and Agribusiness Investments

Firstly, younger generations, particularly Millennials, are not purchasing homes at the same rate as previous generations. This new reality is due to several factors: 1) younger generations are getting married at a later age than older generations; 2) younger professionals are more prone to move regularly for professional or personal reasons, which means that they are hesitant to purchase a fixed home; 3) following the 2008 financial crisis, the purchasing of a home has been financially impossible for average wage-earners; and 4) the housing units that most abound in the current market are unattractive to a younger generation that prefers smaller and more efficient spaces closer to public transport and urban centers.

These various elements suggest that, even as younger generations begin to settle and potentially seek to become homeowners, the demand growth for home ownership will remain soft during the coming years. Simultaneously, the excess stock of real estate in the market will present an opportunity for developers to modernize properties, adapting them for both the market needs and preferences of the 21st century. However, the substantial increase in real estate purchases by large funds and institutional investors, particularly the purchase of properties that have been repossessed by lending banks since 2008, does also present a mid to long-term challenge for aspiring homeowners from the middle and working class who might easily find themselves priced out indefinitely. Thus, it is important to find a way forward that makes financial home ownership mechanisms both attractive to private developers and accessible to aspiring homeowners.

Meanwhile, it is important to remember that the dynamics described above are mainly found throughout urban settings. In the case of investment in agricultural real estate, the market dynamic are somewhat different. Two of the main instruments available to invest in the agriculture industry are Exchange Traded Funds (ETFs) (or exchange traded notes) and Farmland Real Estate Investment Trusts (REITs). Agricultural ETFs normally own commodities or track the performance of commodity indexes, such as corn and coffee. Though useful instruments, the main shortcoming of ETFs is that they do not capitalize on the ensemble of agricultural products, particularly the niche goods that enjoy the most growth. Representing commodities or agricultural tools, such as tractors and plows, ETFs do not benefit from the growth across the whole food and farmland industry. While agricultural commodities and inputs have shown resilience and experienced growth over the last decade, the fast growing agriculture industry goes beyond extensively cultivated row crops. In this regard, Farmland Real Estate Investment Trusts (REITs) have a higher potential to benefit from and reflect the gains of commodity or row crops as well as niche or permanent crops.

(Read more about Agribusiness and Resource Management in Jordan)

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