31 January 2013 | InterContinental Hotel, Park Lane, London
EY Real Estate and Hotels Workshops
‘Setting a course for the future’
Consider other strategies
Challenges and opportunities in emerging markets
Although high potential returns make emerging markets extremely attractive to real estate developers and investors, risk management is a concern. From the emerging markets' perspective, hosting high- profile global events, such as the Olympic Games, should be seen as an opportunity to drive regeneration projects.
This panel session brought together clients from Odebrecht Real Estate in Brazil and PGGM of The Netherlands with EY real estate partners from Brazil, India and Russia.
Are you looking at the emerging markets?
Source: Delegate poll results from the EY Real Estate Workshop 2013
A clear majority (57%) of real estate professionals attending the conference said they were looking at emerging markets. The reasons are clear: “It is four times harder to make returns in established markets than in emerging markets,” explained M&A Director, EY Brazil, Viktor Andrade.
However, emerging markets are also seen as presenting higher risk. When asked about the barriers to investment in emerging markets, 28% of conference participants said their risk management committee (or similar body) did not approve of investments in emerging markets, while another 18% identified perceived political risks, and 17% highlighted perceived corruption risks.
The emerging markets perhaps best placed to overcome perception problems are those exposed to international attention through hosting major global events. With Russia staging the 2014 Winter Olympics at Sochi, and Brazil hosting both the 2014 World Cup and the 2016 Olympics in Rio de Janeiro, interest in these markets will be high. They could also, like London, seek to maximize the benefit of their host status by using the opportunity to regenerate areas that would otherwise struggle to attract investment.
“It's hard to understand how investors can afford not to be in emerging markets like Brazil. Capital flows to emerging markets are growing at 16% per year, as opposed to only 3% among developed economies. It's an irreversible trend. It's a question of necessity to deploy capital to markets that can absorb and need that capital. In emerging markets, for each US$1.00 of GDP generated, you have US$1.00 of capital stock. In the developed economies you have US$4.00 of capital stock for each US$1.00 of GDP generated. So it is four times harder to make returns in established markets than in emerging markets. ”
M&A Director, EY Brazil
“Russian companies, together with foreign investors who have been established locally for a while, and the government, remain the main players in the Russian market. The growing importance of the government's role is noteworthy due to its significant infrastructure projects such as the 2014 Sochi Olympics Games, the expansion of the Moscow territory and the 2018 FIFA World Cup. ”
CIS Real Estate Leader, EY
“Investors who are interested in Brazil now are looking project by project instead of at equity investments in corporations so that they can choose where they are involved. Brazil is and will be a country of large cities. We are in 8 cities, which represent 70% of the market — we have no interest in going into 20 or 30 cities. I believe the way to play the market is to play large projects where you find reliable partners in large cities.”
CFO, Odebrecht Real Estate