Latest Updates on Property News

BT : Deutsche Bank unit sees global real estate recovery in 2009 December 9, 2007

Posted by catherinefong63 in BusinessTimes, London.
trackback

Business Times – 08 Dec 2007

Deutsche Bank unit sees global real estate recovery in 2009

(LONDON) Global real estate investment is leaving behind an era of
above-average returns and is set for leaner times but it will start to
recover in 2009, according to RREEF, Deutsche Bank’s alternative investments
arm.

‘There is some justification for the media hysteria but what we are seeing
is a cyclical correction not the end of the asset class,’ Peter Hobbs of
RREEF said in a telephone interview ahead of a speech yesterday at a Reuters
real estate event.

‘We are expecting a cyclical slowdown, especially in more volatile and
overpriced markets such as London, Madrid, Hong Kong, Singapore, Phoenix,
and San Diego, but the long-term picture remains exciting,’ Mr Hobbs told
Reuters.

Mr Hobbs is head of global real estate research at RREEF, one of the world’s
biggest property fund managers. He also sits on RREEF’s product development
committee.

The firm has expanded into private equity, hedge fund, and infrastructure
investment in recent years but remained committed to real estate, which had
a longer and deeper track record of performance than other alternative asset
classes, Mr Hobbs said.

‘Real estate still has huge potential,’ Mr Hobbs said. ‘There are
generational opportunities.’

The worst case scenario was a repeat of post-bubble Japan, where property
investors got their fingers so badly burnt that they abandoned the asset
class for much of the 1990s and beyond.

But that was unlikely due to several long-term positives, including the
continued growth of wealth in Asia, Latin America, and eastern Europe which
would lift demand for retail and residential property for years to come.

Mr Hobbs said total returns – rental income and capital growth – were set to
slow across most markets in 2008, bringing the global average down to 6 per
cent from 13 per cent this year.

But as aggressive real estate pricing was unwound, so money would be drawn
back into the market, he said.

Pension fund allocations to property remained below target in much of Europe
and Japan, while sovereign wealth funds with up to US$2 trillion at their
disposal had yet to follow the lead of Singapore’s GIC by committing funds
to real estate.

Even debt-dependent players would come back into play, eventually, as
funding costs eased and property was repriced.

The United States, where the economy was under a nasty cloud due to a savage
housing crisis, was already becoming an attractive destination again for
Europe-based property investors, given recent sharp falls in the dollar, Mr
Hobbs said.

The fundamentals in key market New York were also in better shape than in
rival financial centre London.

Excess new supply was an issue in London’s City office market, even though
speculative developments would be reined in due to the global credit crunch,
housing market weakness, and a slowing UK economy, Mr Hobbs said.

British shopping malls faced similar problems, as did Madrid, Hong Kong, and
some Indian cities, which would weigh on rental growth, he said.

Even red-hot Singapore was vulnerable. Having seen rents grow by 200 per
cent in the last three to four years, a recent dip in local real estate
investment trust (Reit) shares probably presaged a slowdown, as they had
already in the UK, Mr Hobbs said.

UK Reits are down 36 per cent so far this year, predating a slowdown in the
country’s underlying commercial property market by six to eight months.

In contrast, the Singapore property index is 17 per cent up in the year-to-
date period, but it had been 39 per cent up in early October. – Reuters