Change in developers' strategy post crisis:
- Land purchase: Developers are no longer focusing their energies on creation of land banks. Land is purchased only in strategic locations after a cost-benefit analysis.
- Alternate business avenues: Developers are now focusing their energies back on the core real estate business, exiting from non-core businesses such as hotels, telecom and insurance
- Product mix: The focus has shifted back to residential, which allows developers to quickly monetize their land banks
- Developers oscillate between luxury and affordable housing: Pre-crisis, developers were primarily focusing on luxury residential segment. It was post-the crisis that developers turned their focus to the growing middle class, focusing on affordable products.
Globalization has changed the world at a much faster and intense pace than any other economic shift in the past. The economic meltdown has made it rather apparent that real estate, traditionally regarded as a local practice — is no longer shielded from the impact of economic integration on a global scale. Real estate, perhaps regarded historically as an asset class that has single handedly contributed to the making and breaking of the greatest fortunes, turned out to be the cause of the economic crisis that began with the sub-prime crisis in the US.
"India, rearing to be an economic powerhouse, with a stable political environment, was quick to find its footing during the global recession. On residential front, sector will face significant shortage of homes for the mid-income group, and has become priority in the government's policy. Whereas, commercial property will create more than two million jobs in the next four years resulting in country to continue being the destination of choice for outsourcing. Real estate prices have peaked, exceeding the pre-recession rates in some markets", says Ajit Krishnan, Partner & Real Estate & Infrastructure Leader, Ernst & Young.
"Expected economic growth at a rate of more than 8% and rapid urbanization are the factors promising growth in Indian real estate market but strong infrastructure, favorable regulatory support and more funding options is something which will work in favor of the sector in India," adds Ajit.
Global transaction volume in the 2Q2011 totaled $165.3B -- representing a 36% increase from a year earlier and bringing the total for 2011 at midyear to approx 350B. Chilly economic headwinds are leading to a more cautious attitude among real estate investors and corporate occupiers. Heightened investor demand of the past few months has been tempered by mounting concerns over the handling of the sovereign debt crisis in Europe and the US and by increasing doubts about future global economic expansion. Following a cautious approach, investors are flocking to the US and not Europe. Growth is expected outside the US and Europe-- particularly Latin America and Asia, as 2/3 of the global growth now to 2030 is expected to come from emerging markets. Spread between safety and emerging market growth will remain wide, feels Howard Roth, Global real estate leader, Ernst & Young
Nepal and Sri Lanka — both countries emerging from political uncertainty — are markets waiting to be explored. The real estate markets, being at nascent stages of development, have the potential to provide a significant first-mover advantage to those willing to test waters. These countries are focusing on infrastructure development and have a huge latent demand for products in the affordable segment, though at present these could be restricted to certain areas.
Singapore's property sector was not spared from the global economic downturn. The turnaround that followed caused apprehensions of a property bubble. The government introduced anti-speculative measures in response to the rapidly heating markets. Government vigilance and measures such as pro-foreign investment policies in conjunction with a compelling geographic location not only position Singapore as the financial capital for the entire Asian region, but also continue to renew investor confidence in the market.. Africa will experience huge demand for affordable housing, tax benefits for urbanization and due to economic recovery; continent will have high demand for commercial space. A case in point is Mauritius, which promotes investor-friendly regulations which permit easy sale to non-citizens, attracting high-net worth individuals. Schemes such as the Real Estate Scheme (RES) provide residence permits and allow payment in any currency. In UK, government initiatives like new homes bonus scheme will enhance affordable housing but job insecurities are keeping buyers at bay. London is the only market witnessing rise in activities and relocation. On the other side, US is facing declining rate of home ownership, economic headwinds are putting continuous pressure on household finances.
However, the US presently has some appealing risk-adjusted opportunities, in the warehousing, R&D and multi-family sectors. UAE, presently facing a huge oversupply situation is looking at regulatory interventions to instill demand. This includes revision of real estate visa regulations for expatriates which will allow residence visa to be renewed every three years instead of the present six month renewal.
Whereas, countries such as the US, the UK and the UAE are working to gradually restore and offset the impact of the significant declines of the global economic crisis and its related uncertainties. Not surprisingly, the real estate markets in these areas are likely to remain challenged. The confidence of the perceived eventual recovery in these markets can be gauged through heightened activity of non-cyclic investors who are exploiting the low rates.
Despite the economic recession, the trend of globalization has touched across all quarters of the real estate sector, albeit at different degrees, across various geographies. The peak in 2007 set about a new trend with a few groups daring to risk working outside their local markets, having developed a risk appetite. "As the markets change, those who have dared to work in a cross border capacity see opportunity in adversity. The downfall of one market emerges as an opportunity for another, concludes Ajit."
