The economic earthquake that is the global recession has rocked the foundations of the Asian residential markets. And like an earthquake, the residential shakeup has hit some regions and subsectors harder than others, and a number of residential market recoveries are expected in the middle to long term. How are various Asian residential markets digging their way out of the biggest downturn in ages?
More than 900 real estate funds were formed globally during the six years leading up to 2008, raising more than US$350 billion in aggregate investment commitments. The real estate fund universe has developed to become substantial and complex. It includes global, regional, country, sector, equity, debt and even single-asset funds. Following the collapse of Lehman Bros. in September 2008, and accelerating into this year, an industry shake-out began to take place, as undercapitalized, inexperienced, ill-structured or just plain unlucky managers were forced to consider alternatives to their expected growth plans.
Real estate investment managers took a broadside hit from the recent global financial markets implosion — a result of the U.S. subprime mortgage crisis — and its subsequent adverse economic fallout. Now, managers are knee-deep in the wreckage, battling a host of challenges including liquidity issues due to the frozen credit markets, softening property fundamentals fueled by global recession, investor redemption requests in some cases, and significant portfolio write-downs in most cases. The damage is evident in the assets under management figures reported in a survey of real estate investment managers.
Dr. Robert Edelstein serves as co-chair of the Fisher Center for Real Estate & Urban Economics in the Haas School of Business at the University of California at Berkeley. He is active in the fields of real estate economics, finance, and property taxation; energy and environmental economics; public finance; and urban financial problems. He currently is president and a member of the board of the Asian Real Estate Society. Dr. Edelstein recently spoke with Alex Eidlin, associate publisher and managing director, Asia, of Institutional Real Estate, Inc., about his academic and professional real estate activities, as well as his thoughts on the impact of the global financial crisis on Asia and Asian real estate markets.
Several months ago, I briefly wrote about the capital available for investing in Asian real estate. Amidst the credit crunch, my worry was that capital for Asia might dry up and exacerbate the downward price spiral with dire consequences for the investors who have been seeing the value of their portfolios decrease considerably in the recent past. The silver lining of the otherwise bad situation was that many real estate funds raised prior to the crisis had plenty of cash that was sitting on the sidelines waiting for the price correction and more attractive deals.