Global Real Estate… Optimism?

Rachel Somerstein reports on some promising news about the global real estate market from the “Road to Recovery: Investing in the Global Real Estate Rebound” conference, and wonders whether the developed world can learn a thing or two from places like Brazil, Mexico and China.

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Type “signs of recovery” into Google, and you’ll get some 38 million hits – most regarding the economy. The vast majority of these sound a cautious optimism, detailing “small,” “modest,” and “shaky” gains – or “slowed losses” – in the retail, airline, and housing industries, among others. Judging by the datelines on some of these reports, folks have been cautiously optimistic about the economy since January 2009, studying trends for recovery as closely, and perhaps as unscientifically, as looking to tea leaves or goat entrails for glimpses into the future. (It is worth noting that a paltry one out of ten hits, according to my own recent, equally unscientific survey, bears the words “signs of recovery” juxtaposed alongside such phrases as “…don’t extend to jobs” or “Are these….just an illusion?” What can I say? Syntax is everything.)

That pervasive, perhaps unrealistic optimism is one reason that the recent Road to Recovery: Investing in the Global Real Estate Rebound, organized by the Philadelphia-based Knowledge@Wharton, was such a relief. Despite the convention’s title, participants, drawn from the media, financial, commercial, and home-building industries, showed remarkable candor (and expertise) regarding the present and future of global real estate – such that Mukul Pandya, editor-in-chief and executive director of Knowledge@Wharton, remarked upon it in his closing address. All told, the bulk of panelists agreed that commercial real estate is frozen for now; that it is, consequently, a buyer’s market; and that, despite falling prices, millions of square feet of office space, from Dubai to Duluth, remain empty.

But the most compelling (and, yes, optimistic) stories that emerged had to do with the developing world. Such countries as Kenya and Mexico, along with what’s known, in investor parlance, as BRIC – Brazil, Russia, India, and China – are home to rising populations and a burgeoning middle class with “European aspirations,” that is, a desire (and the means) to consume up-market goods. As a result, many of these countries are presently or soon will be facing tremendous housing shortages. In an industry where “no one in the U.S. is making any money,” according to one panelist, the developing world presents a vast array of investment opportunities, design challenges, and land to be built upon.

Despite demographic similarities, however, in the developing world (as elsewhere), varying degrees of government intervention will determine the future of each nation’s new infrastructure and housing stock. In Brazil, for instance, according to Carlos Della Libera, executive advisor to Brazil’s State Housing Secretary, the government has implemented Minha Casa, Minha Vida (My House, My Life), a home-ownership program aimed at the low and middle classes. Some one million units are slated for construction between 2009 and 2011. Della Libera likened it to New York’s Mitchell-Llama program, which in the 1970s granted subsidies to landlords to develop rentals at below-market prices. (With many of the Mitchell-Llama programs nearing expiration, it should be noted, residents of those buildings may soon have to scramble.) Minha Casa, Minha Vida uses sustainable materials and makes use of universal design, meaning the homes are accessible to the wheelchair bound and other disabled people.

Meanwhile, in Mexico, housing and infrastructure are developing as a result of a different type of governmental intervention: favorable mortgage rates. According to Gerardo de Nicolas, CEO of Mexico’s Homex – a behemoth of a firm that develops low- and middle-income housing, and which reported $377 million in revenues in the third quarter of 2009 – mortgages can be had at interest rates at around nine percent for 30 years. That’s in stark contrast to other high-interest loans, for which the country is notorious (rates around 80 percent, or even higher, are the norm). Perhaps most meaningfully, however, is that these new developments are also determining the nation’s new infrastructure. In addition to their mortgages, private citizens are footing the bill for construction of waste and water lines, among other infrastructure, that connect their new homes to the grid.

Not surprisingly, government intervention in China, at least in the realm of commercial real estate, has to do with limits. Standard commercial development tops out at 20,000 square meters – any larger and a special permit is necessary, which can be a lengthy and drawn-out process, said Jeffrey H. Schwartz, chairman of Global Logistic Properties, which operates in China and Japan. Typical exceptions? Multinational corporations like Nike.

So to you policy wonks out there: Does any of these models appeal to you? What seems the most sustainable way to do good business – for investors and future home-owners alike? Can we in the ‘developed’ world, where the real estate bubble has so painfully popped, take a lesson from these models abroad?

Image by Rahims via flickr.

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Tags: philadelphiainfrastructurebuilt environmentgovernancebrazil

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