In 2015, this column raised a note of caution about real estate investment at a moment when many commentators were bullish. The concerns expressed then — about developer leverage, completion risk, and the danger of buying into illiquid assets on the promise of future delivery — proved well-founded in India and several other markets over the years that followed.
In 2024, we find ourselves at another inflection point. The global real estate landscape has been fundamentally reshaped by the most aggressive interest rate tightening cycle in four decades. The result is a market of dramatic divergences — sectors and geographies under severe pressure sitting alongside others displaying remarkable resilience. The question of whether now is a risky time to invest in real estate requires a considerably more nuanced answer than a simple yes or no.
The Macro Backdrop: Higher Rates Have Changed Everything
From near-zero interest rates in 2021, central banks across the developed world raised rates to multi-decade highs: the US Federal Reserve to 5.25–5.5%, the Bank of England to 5.25%, the European Central Bank to 4.5%. Although easing cycles began in late 2023 and 2024, rates remain materially higher than the ultra-accommodative levels that characterised the 2010–2021 period.
Higher rates affect real estate through multiple channels simultaneously. Mortgage affordability deteriorates, reducing demand from owner-occupiers and reducing the pool of leveraged buyers. Property yields must rise (meaning prices must fall) to remain competitive with risk-free returns now available on bonds and savings products. Development finance costs increase, straining developers already managing thin margins.
The crucial variable — and the reason a generalised answer is insufficient — is which type of property in which geography.
Commercial Real Estate in Western Markets: Genuine Stress
Office real estate in major Western cities represents perhaps the most structurally challenged asset class in global real estate today. The shift to hybrid working has permanently reduced occupancy in most major office markets. In San Francisco, Manhattan, London, and Paris, vacancy rates have climbed to levels not seen in decades. Landlords are offering rent-free periods, fitout contributions, and increased tenant flexibility that would have been unthinkable in 2019. Capital values have declined 25–40% from peak in many sub-markets.
The refinancing wall — a large volume of commercial real estate loans maturing between 2024 and 2026, many originated at ultra-low rates against valuations that are now materially impaired — represents a genuine systemic stress point. Banks with concentrated commercial real estate exposures, particularly smaller US regional banks, face real risk. Investors in unlisted property funds holding office assets should scrutinise redemption terms carefully.
Retail real estate has faced its own structural disruption from e-commerce. Secondary and tertiary retail properties remain extremely difficult to invest in with confidence. Prime high street and dominant regional shopping centre assets have stabilised somewhat, but the sector demands careful asset selection.
Residential Property in Western Markets: Supported but Stretched
Western residential markets have proven more resilient than many expected at the start of the rate tightening cycle, for a straightforward structural reason: housing supply has been chronically inadequate across most major markets for over a decade. In the UK, Australia, Canada, and large parts of the United States, the number of new homes built annually has consistently fallen short of demand from population growth, household formation, and immigration.
This supply constraint has put a floor under residential prices even as affordability has deteriorated. UK house prices fell approximately 5–7% from their 2022 peak before stabilising; Australian prices fell then recovered strongly as immigration surged; US prices proved remarkably sticky outside a few over-supplied Sun Belt markets. In 2024, with rate cuts beginning, residential markets in supply-constrained locations have once again seen price growth resume.
The risk for residential property buyers in the UK and Australia is not collapse — it is overpaying at a moment of stretched affordability, locked into a period of compressed rental yields, with the carrying cost high and future appreciation uncertain. Disciplined buying in locations with provable structural supply deficits remains defensible. Speculative purchases in fringe locations with weak employment fundamentals are a different matter.
India's Residential Market: Remarkable Resilience
India's residential property market has been one of the notable global outperformers of the 2022–2024 cycle. Driven by a large and growing middle class, rising aspirational homeownership, significant NRI (Non-Resident Indian) buyer demand, and supply-side reforms implemented following the RERA regulatory overhaul, major city residential markets — Mumbai, Pune, Bengaluru, Hyderabad, Delhi NCR — have shown robust volume and price growth.
Crucially, India's mortgage market is not deeply extended in the way that Western markets were at equivalent points of previous cycles. Loan-to-value ratios are typically conservative, and the Reserve Bank of India has managed the credit cycle with greater discipline than its Western counterparts. This structural difference reduces systemic risk considerably.
The original caution in our 2015 article about developer completion risk and pre-construction sales remains relevant. The post-RERA environment is substantially more protective of buyers — escrow accounts, regulatory oversight, and criminal penalties for non-delivery have improved the landscape — but due diligence on the specific developer's track record, financial health, and RERA registration remains essential before committing to an under-construction property.
Southeast Asia: Continued Foreign Capital Attraction
Southeast Asian residential and hospitality real estate continues to attract significant international capital, and for good reasons. Thailand, Vietnam, Indonesia, and the Philippines offer a combination of strong domestic demand fundamentals, growing middle classes, tourism-driven hospitality demand, and in many cases, transparent legal frameworks for foreign buyers (within the constraints of local ownership restrictions).
Phuket and Koh Samui in Thailand, Bali in Indonesia, Da Nang and Phu Quoc in Vietnam, and Boracay in the Philippines have all seen substantial investment in branded residences, holiday villa developments, and condominium schemes targeted at both foreign and domestic buyers. Yields on managed resort properties in these markets typically run 5–8% net, attractive relative to the near-zero or negative real yields available in much of Europe until recently.
The risks specific to Southeast Asian markets warrant respect: foreign ownership restrictions, less robust legal enforcement than Western markets, currency risk for investors holding assets in local currency against sterling or dollar income, and the inherent illiquidity of resort property in markets where the buyer pool is internationally dependent.
What Prudent Property Investors Are Doing in 2024
Our assessment of the current risk landscape leads to the following framework for readers considering property investment:
- Avoid speculative pre-construction purchases from developers with unproven track records, regardless of market. The completion risk identified in 2015 remains real, and developer stress is heightened by higher financing costs.
- Prioritise income-generating completed assets over development plays. In a higher-rate environment, cash flow matters more than anticipated capital gains.
- Distinguish sharply between sectors. Residential in supply-constrained locations is a fundamentally different risk profile from office property in Western cities. The headlines about "real estate crisis" largely refer to the latter, not the former.
- Maintain liquidity. Distressed asset opportunities are beginning to emerge in Western commercial markets. Having capital available when motivated sellers appear is a genuine competitive advantage.
- In India and Southeast Asia, focus on established micro-locations. The premium attached to proven addresses — whether a Bangalore tech corridor or a Phuket beach road — is genuinely justified by the track record of demand.
Is Now Riskier Than Normal?
Honestly: yes, in some sectors, and no in others. Western commercial real estate faces genuine structural challenges that extend beyond the interest rate cycle. Pre-construction residential development everywhere carries elevated developer-failure risk whilst rates remain elevated. These are genuinely riskier conditions than the 2012–2021 era of cheap money.
But well-located residential property in supply-constrained markets, income-generating resort real estate in strong tourism destinations, and completed assets priced to reflect current yield requirements are not inherently riskier than at most points in history. The discipline required is greater; the headline noise is louder; but the fundamentals for patient, informed property investors remain navigable.
As with all market moments that feel particularly complex, the answer lies not in whether to invest but in what and where — and in approaching those choices with more rigour than the market's easy years ever demanded.