The recent Knowledge@Wharton Real Estate in Emerging Markets Forum revealed some interesting facts in regards to world real estate markets and where the action is right now.
While the US, Western Europe and some of the BRIC economies experience drastic times of little or no growth, no demand and plenty of bankruptcies and job losses, some other countries keep building their assets in earnest.
China, one of the four BRIC nations and praised as the poster child of them all not so long ago is in the middle of their very own recession with many developers trying to cut costs in order to keep themselves in the black numbers.
According to Ignatius Chithelen, managing partner of New York investment firm Banyan Tree Capital, China offers a particular strong point to arm themselves for future growth; they stand apart from the other BRICs “as the world’s banker.”
Chithelen said “today, China is the best-situated country.”
This might well be true when we look at China’s $4 trillion in reserves, their trade and budget surpluses, and China’s ability to allocate huge resources to infrastructure projects.
Philip Mintz, managing director of Warburg Pincus Asia in Hong Kong offered even more optimism for China as a notable real estate market in the future by saying “China does have one thing that several participants viewed as critical for evaluating investments in emerging markets: its huge population of 1.4 billion people, which, long term, will fuel the demand for affordable housing and retail.”
But it isn’t China that is currently on fire and seems unaffected by the global credit crunch. In fact it is Brazil that currently takes the global spotlight, closely followed by Egypt and Mexico according to the Forum. While Egypt and Mexico share a common attribute, namely the demand of a growing and massive population that will eventually require more housing as the economy strengthens once again, Brazil is still going very strong.
New developments are selling faster than hot-cakes, often within hours or days of being on the market. Since brazil subsidises low-income mortgages, buyers access to financing options has been unaffected by the global events.
Companies such as Zell’s Equity International even reported a growth of 12% from the year previous in their malls, clearly indicating that people are still spending plenty of money. This is not so in the UK where many store owners declare themselves bankrupt after experiencing a six month period with little or no sales.
Another bonus for the Brazilian market is their low GDP in mortgages of only 2%. Compare this with the UK at 74% and the US at 65% and you know where opportunities exists right now.
However, despite the good news on Brazil a certain slowing period is still expected if and when the financial crisis reaches out further. According to Tom Shapiro, president and founder of GoldenTree InSite Partners, NY, the middle class market will most likely be affected most since they don’t receive government subsidies for mortgages.
Key issues with countries such as India and Russia is the widespread corruption. This puts a damper on their situation as many investors are being cautious. Plus the lack of lending in Russia isn’t helping either to those who want to buy but can’t.
The real winner of the real estate forum is indeed Brazil who seems to be favoured by most industry leaders in the forum. Given some time and a turn around in the economy, time will tell whether this growth is to be long term and if markets such as Mexico and Egypt are picking up the flack.