18 real estate stocks in Asia have been growing. As a result, it is likely that outstanding stocks representing global real estate in liquid secu- rities form have reached as much as $2 to $3 trillion. When compared with a total global stock market valuation of $60-$70 trillion and total global real estate of $217 trillion, securi- tized real estate does not represent a significant percentage of either. The crossover between real estate and the equity securities market is not significant—at least not yet. A large part of real estate ownership and control continues in entrepreneurial, family, or government hands, or on general corporate bal- ance sheets. No doubt, outstanding mortgages represent a significant and influential portion of the real estate economic value held by banks, insurance companies, pension funds, and other lenders. Since the 1980s, a growing number of those mortgages have been securitized into both the fixed income and equity markets. Real estate investments have tradition- ally been a place investors go for yield. This includes REITs, in particular, because—as a matter of law—they are required to pay out most of their earnings. Using ETF performance as a benchmark, real estate stocks have underperformed the gen- eral market in recent years. One of the reasons is that the tech industry and technology stocks have significantly outperformed the general market index since the financial crisis and bail- outs. However, if you expand your horizon to a longer period—say, 20 years—then real estate outperforms the general stock market. As interest rates rise, as they are now doing, real estate prices adjust. Once rates level off, expect real estate to offer both yields and some protection against inflation—so long as the underlying investments focus on the cities and places that get things right in this period of change. Be careful—not everybody is going to get things right. Areas where the rule of law breaks down could be ugly and generate signif- icant losses. Unfortunately, mortgage fraud, disaster capitalism, and transhumanism are likely to produce high-yield income—even mind-bog- gling fortunes. Historically, mechanisms used to produce investor yields have included land grabs from Native Americans, the Europe- an-U.S. slave trade, the build-out of cotton production in the southern states with slaves, and the opening of U.S. cities to hard narcotics trafficking after WWII—more recent mech- anisms (including low-income housing, tax shelters and credits, and prison stocks) were created to do the same. Here is the primary trend you need to focus on: Expect real estate securitization to grow in both relative and absolute terms. Mr. Global is making a big bet on moving global real estate ownership into the securities and professional investor markets. Increased convergence of real estate with global stock markets will be a primary trend for some time to come. In 2016, S&P Dow Jones Indices and MSCI announced that they were changing the Global Industry Classification Standard (GICS) structure—an industry taxonomy that they introduced in 1999—to break real estate out into its own sector. “When GICS (The Global Industry Classi- fication Standard Structure) was introduced in 1999, we committed to keeping the struc- ture up to date as the global economy evolves. The creation of an eleventh sector recognizes the growing importance of real estate in the world’s equity markets. The decision to add a real estate sector was based on extensive com- ments from investors and analysts as well as in-depth analysis and discussions between S&P Dow Jones Indices and MSCI.” ~David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices, March 8, 2016 Real estate had traditionally been included in the banking sector. With the 2016 decision, the index companies broke it out to become a II. Megacities & the Growth of Global Real Estate Companies