Expert Zone

Straight from the Specialists

When are house prices a worry?

Photo

(Any opinions expressed here are those of the author and not of Thomson Reuters)

As I speak with a relatively recognizable British accent, travelling by taxi in many Asian countries has become something of a trial in recent years. Whenever my nationality is recognized, I am (courteously) asked for my views on the London property market, and where to buy. In a world of low interest rates, property has become increasingly fashionable, and somehow housing advice delivered in a British accent has become highly sought after.

The development of One Hyde Park is seen in LondonProperty prices in London are now over 30 percent above their pre-crisis level. For the rest of the UK, house prices are now back where they were before the onset of the economic crisis (it should be noted that the economy is around 13 percent larger in nominal terms over the same period, so the house price to GDP ratio has fallen for the country as a whole). In the United States, house prices have yet to regain their pre-crash levels, but they are up 20 percent from their lows. Even in the Euro area, not an economy noted for its vibrancy, German property prices are 10 percent higher than they were before the crisis.

The increase in property prices is starting to attract the attention of policy makers – certainly in the United Kingdom, where there is a great deal of media focus on the issue. The interesting question is at what point should property prices become a cause for concern for policy makers? As with most issues in economics, there is no simple answer.

Sold new build homes are seen on a development in south LondonRising property prices, in economic terms, are neither automatically good nor automatically bad. Rising prices of any asset are neither good nor bad – if a price increase means that an asset is fairly valued, it is good, if a price increase means that an asset is unfairly valued then it is bad (a concept that television reporters covering equity markets would do well to learn). A changing asset price should not, of itself, worry policy makers. What will worry policy makers are the consequences of rising property prices. There are four areas of focus.

Mall developers take to revenue-sharing to woo retailers

Photo

(Any opinions expressed here are those of the author and not of Thomson Reuters)

Over the last five to seven years, the retail segment in India has evolved towards a more organized pricing structure. After the real estate boom of 2005-06, when property prices increased to as much as 40 percent of a retailer’s operating costs, developers seemed more willing to share the business risk. They moved from a per-square-foot rental model to versions of the minimum guarantee and/or the revenue share model. Most investment-grade properties in major cities now follow this model, unlike shopping centres in smaller cities.

In the original model, rentals varied depending on the store and location. But with increased brand awareness and rising vacancies, developers saw the need for a customized tenancy mix, adopting efficient mall management techniques while protecting retailer interests to maximize their own earnings.

SEBI tries to get it REIT again

Photo

(Any opinions expressed here are those of the author and not of Thomson Reuters)

Ease of funding is a key recommendation for the growth and development of the Indian realty sector in the coming decade. New instruments of funding should be allowed into the sector, especially real estate investment trusts (REITs) — an investment mechanism that buys income-generating real estate assets and passes on the yield to investors.

In this current climate of dwindling investor sentiment and a plunging rupee, there is a need to implement funding options such as REITs for infusing much needed liquidity into the sector. The total REIT market size in the Asia-Pacific region is approximately $205 billion but India has been unable to take advantage of this funding opportunity, mainly because of the lack of an existing regulatory framework.

The paradox of India’s real estate business

Photo

(Any opinions expressed here are those of the author and not of Reuters)

Over the last two years, India has been battling various economic issues such as rising fiscal deficit, a falling rupee and increasing food inflation. No, nothing new there. And what does this have to do with real estate? Quite a lot.

A country’s economic performance has direct repercussions on how its real estate market behaves. This is especially true for the residential property segment. More prosperity means higher financial confidence among home buyers, and this leads to a greater demand for homes. The opposite is, of course, equally true.

  • Editors & Key Contributors