• Home
• News
• Highlights
• Articles
• Career
• Contact Us

  Email this to a friend

Real Estate Remains Hot in Emerging Economies

Western housing bust or not, real estate continues to be hot in countries with emerging economies.

The global credit crunch sent property prices reeling in developed markets from the US to Spain, but in appears to have done little to slow the real estate sector in places like Brazil and Russia,countries still thriving on a commondities boom and increased access to mortgage finanacing.

The dire combination of slowing economic growth and rising inflation might be prompting some investors to shun emerging-market bonds and equities, but others are positioning themselves for property values to rise further.

"We're advising investors to own land, buy into real estate brokers, construction firms or suppliers of raw materials," said Jonathan Garner, head of emerging markets strategy at Morgan Stanley. "For purer property-relaed plays, we are recommending some property develpers."

Growing urbanisation and rising incomes are fueling property demand in the countries with the four largest emerging economies: Brazil, Russia, India and China, known as BRIC.

Low interest rates in countries whose currencies are pegged to the dollar, like the United Arab Emirates, and a shortage of homes and offices are keeping real estate values there at records too.

Unlike their counterparts in developed economies, banks in most emerging markets are largely unaffected by the liquidity squeeze set off last year by huge subprime mortgage defaults in the US.

In a report Thursday, the ratings agency Fitch said that home builders in the BRIC economies were supported by rising home affordability and economic growth, although they face risks like greater uncertainty in legal and relulatory environments.

"The credit crunch has very limited relevance to many emerging markets," Garner said. "Not only are the banks in good shape, you've also got households that are not overextended."

The ratio of household debt to gross domestic product in the BRIC countries ranges from 5% to 10%, compared to more than 100% in Britain and 90% in the US, he said.

Soaring consumer prices, particularly vexing for emerging economies, where people typically spen more on food as a percentage of income than in developed countries, are also making inflation-linked rents an attractive hedge.

Fund managers say that the overall rise in asset values from inflation could make real estate more attractive, even though it raises borrowing costs for developers and buyers.

Paradoxically, the allure of brick-and-mortar assets might be further burnished as a result of weakening equity values, which were down nearly 6% in emerging markets since the start of 2008.

"When stock markets go down, some investors see physical assets such as property as 'safe haven,'"said Jeff Chowdhry, head of emerging equities at F&C Investments.

Chowdhry said he was upbeat on Mexico and Brazil, where morgage growth is making middle-class home ownership more affordable, but cautious on India, where residential property appears overvalued, as well as on Turkey.

"We don't believe that a property rise is sustainable when stock prices continue4 to fall and interest rates rise," he said.

Since the start of the year, the Turkish stock market has lost 27% of its value, while its currency has waned 5% against the dollar.

Savills, the British property services company, is underterred. Its property fund management unit, Cordea Savills, is raising 400mil pound, or US$622mil, for a fund aimed at Turkish retail and residential real estate, with a targeted return on investment of 25% a year.

"This is a country of some 70million people, with half of the population under 30 and  with an average annual population growth of about 1%," said Ian Jones, director of investments at Cordea Savills. "The economy is slowing, but coming down from a high base."

The growing spending power of emerging-market consumers means that retail property in these economies is particularly promising, said Biljana Bozic, head of real estate at East Capital in Moscow.

"Thanks to oil prices, disposable income has increased almost 75% in the last five years," said Bozic, who is managing East Capital's 200mil pound property fund aimed at retail property in Russia, Ukraine and Kazakhstan.

"Retailers want to expand, but can't find available space," he  said. "During the Soviet era, there was hardly any commercial real estate built." - IHT

Source : The Star Bizweek
~ 14 June 2007 ~

Professional Services

For Sale / Rent