Asia’s sheer size — in land and population — dwarfs the world’s other regions. With 3.7 billion residents, Asia accounts for 57 percent of global population. That share will drop to 55 percent by 2030, according to United Nations projections, but the continent will still capture half of earth’s population growth between now and then. In terms of future real estate demand, population expansion provides an important underpinning, but two other demographic trends are equally beneficial: strong urbanization patterns and rapidly expanding middle classes. Every household moving from the country to a city needs shelter, and Asia’s demand for both affordable and workforce housing is insatiable.
From the Current Issue
Anthony Frammartino is a principal with The Townsend Group, a U.S.-based global institutional real estate consulting services firm founded in 1983. Frammartino recently spoke with The Institutional Real Estate Letter – Asia Pacific editor Jennifer Molloy about how his firm’s clients are being impacted by the global financial crisis.
Last year was the worst year of performance in the history of global real estate securities — and one of the worst years in broad-market indices. In addition to poor performance, 2008 also marked a period of unprecedented stock market volatility for both real estate and broad-market stocks. For the year, global real estate stocks in the UBS Investors Index were down 42.6 percent, compared with a decline of 38.3 percent for the MSCI World Equity Index.
Many years ago, when markets were liquid, prices were low and yields were high, I attended a conference in China where I took part in a discussion panel devoted to understanding the investment risk for investors new to Chinese markets. A foreign investor on the panel argued that because he had entered an unknown market, converted his investment capital into a foreign currency and otherwise subjected himself to a host of unknown risks, he felt he should be compensated by receiving higher returns than his home market offered.
Master-planned communities, which combine residential, commercial and leisure facilities, are an ongoing trend in India, currently fueled by the country’s strong economic growth, increased urbanization rate and changing demographic patterns. With 100 percent foreign direct investment allowed by the Indian government since 2005, global institutional investors have taken note of this real estate investment opportunity.
Recent announcements by major foreign institutional investors entering the Chinese real estate market cause me great concern. The timing seems all wrong — China is facing unprecedented challenges to its domestic economy from the global financial crisis and the slowing of global economic growth. More than one year ago, I predicted that a real estate bubble in China was inevitable and that it would seriously impact the Chinese banks. Today that view is becoming widely accepted and debated.