Posts in Category Finance and real estate market

(III) Mipim2011 the World’s property market: analyzing topics

14 September, 2012 No Comments

In this second post I limit myself to make a synthesis of ideas presented in Dr. N.Roubini’s conference at MIPIM 2011.  Due to the length of the presentation, I focused on what might be more relevant for the real estate investor. Nonetheless, for those who want full details about the presentation, I included the full video in its original version in my previous post.

Core Observations:

1-The question that Dr. Nouriel Roubini arises: Can countries such as China and other emerging countries tighten their monetary policy and their exchange rate to reduce inflation and maintain economic growth in order to get a soft landing of the economy rather than a hard one?

The strength of the economies of the growing emerging markets encourages the risk of a higher inflation. In these markets, there is a clear economic overheating, excessive credit growth, and note that about two thirds of their consumption basket is: oil, energy, food and transportation

2 – A vivid example would be the current situation in the Middle East: What’s happening right now in the Middle East? Nobody could foresee the political movement that took place in early 2011. We don’t know if this is going to stabilize soon, or if it will spread to other countries. This can have an effect on oil and energy prices … In such case, what would be the consequences of higher oil prices?

* There will be a severe problem of inflation of the overheated emerging markets.

* A lower risk of inflation in developed economies since the recovery from the financial crisis is very slow

* It also has an impact on economic growth. Specifically a destabilizing effect in the investor and consumer’s confidence in particular…

3 – In recent years there has been a massive injection of liquidity into the global economy. There were massive fiscal stimulus in the US, Japan, Europe, and other emerging markets, but if we take a look at the current market (as of 2011) we realize that we are in the opposite side: there is less monetary stimulus and more fiscal austerity (countries in Europe and the UK started to cut on spending and tax incentives, as well as the US, who began to cut costs ….. The question is: Will the private market have the possibility to consume in order to have economic growth when some of the fiscal and monetary stimuli are gone?

Areas with potential growth: the U.S. at a 3%, some parts of Europe at a 1.5 to 2%, and emerging markets, eastern countries and South America at a 5-8% growth rate.


Turkey’s growth prospect is very optimistic for the medium to the long term. There is still growth in its population and as a consequence there is a significant domestic market (As a contrary, China’s population is decreasing). It can be a fast-growing economy although structural reforms need to be done. If these reforms are made at a regular pace, the forecast of growth for the future is very positive (real estate growth comes along).

Prices will increase reasonably which will improve Russia’s fiscal balance, and consequently its economic growth. However, the fact that Russia is not a very well-diversified economy prevents growth of being even greater. For example, in 2010 where there was a global economic recovery countries such as India or China grew at a 9% rate or Brazil at a 7.5%, but Russia instead, grew at a 4.5% rate.

Its current situation (as of 2011) is slow growth and a 2 digit inflation, and unless structural reforms are put in place to accelerate growth, the former will be slowed down. Even though Russia has great potential for growth given its vast natural resources, a good education system, and good scientists, there will be a direct relationship between what happens to oil prices and the growth of Russia. If oil prices rise the Russian economy will be stronger because it will improve the country’s economic balance. But, what should really be a concern is the long-term growth of their economy, and foreign investors are aware of it, and with it, aware of the risk of expropriation.


Currently there is an oversupply of existing houses. Home sales fell up to 80% of its highs, even though now are gradually increasing. However, home prices are still adjusted downward, inflation is present in the economy, unemployment is still high and people who are forced to leave their homes because they can’t pay their mortgages. Prices have adjusted by a 30%, but may have not bottomed out, and it might require a longer period of time for these adjustments to run out.


Fiscal austerity is urgently needed in the Euro zone, the UK and Japan. Even though a period of austerity is a “must”, it will have in the short term a negative effect on economic growth. Austerity means to cut on government spending, to fire public officials… but it will make the economic recovery more effective in the long run.

(II) Mipim2011 the World’s property market: analyzing topics

13 September, 2012 No Comments

I would like this post to be a meeting point for reflection in this crucial time for the real estate and the financial sectors.  Dr. Nouriel Roubini in 2006, was one of the few to alert the financial community of the crisis that was underway.

Nouriel Roubini, who attended to the 2011 economic forum in Davos, is an advisor in the subject of international economics to the White House, the IMF, The World Bank, and is a professor at NYU’s Stern’s School of Business, and Yale University. Mr Roubini has a Phd. in economics from Harvard University among many other degrees and awards for his work.  In this video Mr Roubini presents in a schematically way the current and future situation of the advanced economies and emerging markets so that real estate investors can direct their investments to markets that they consider will have greater potential of response.

* In the first part of his presentation in 2011, Mr Roubini highlights the strengths and weaknesses of the global economy today:


1 + Despite the severe economic and financial crisis, we are at a stage in which we perceive a slight recovery. In the last two years (counting from 2011 and back) the economy, both in emerging countries (Brics..) and advanced economies (USA and parts of Europe) has shown symptoms of growth.

2 + Due to the crisis, corporations in both the U.S. and Europe have had to cut on expenses (personnel, and overall costs…). Therefore, they are now more prepared to invest as they are stronger than two years ago. HOWEVER, the question posed by Roubini is: Will these companies decide to invest in advanced economies (which are slow-growth countries) or in emerging market economies (for faster growth)?.

3 + The rapid growth of the economies of emerging markets, presents itself to the public as the new item that can be the locomotive of the world’s economy (until now it was solely the US and the advanced economies). Mr Roubini does not only speak about BRICS, China, or India, but also other countries from Central Asia, Middle East and Latin America, where great progress is taking place, as these markets are growing very rapidly.

For the real estate market, growth in emerging markets will be a positive event in the medium to the long term, as it leads to industrialization, and thus to the urbanization and the improvement of infrastructures. China and India are currently under a process of rapid and massive urbanization and industrialization.

4 + 2010 was a year of “risk on” “risk off”. Last spring season people got worried amid the recession in Greece, and the US’s double dip recession.

However, throughout the fall, things began to improve in the financial markets, and when looking at the overall 2010, we could say that it ended up with better perspectives as a result of the fiscal stimulus in the U.S. and other measures taken in Europe to help the countries whose economies were in trouble.

Since the global economy is slowly recovering, it follows that financial markets will also recover (becoming a vicious cycle). It would be the opposite of what happened in 2008 when prices and investment sunk, causing the economy to contract.

- Negatives:

1 – In many advanced economies, the recovery is almost inexistent, due to the large amount of debt of the public and private sectors. This will slow growth since corporations and governments must spend less and save more to reduce debt.

2-This paragraph is related to the previous one. There is a significant and sudden increase in risk of the advanced economies. Not only in countries of the Euro zone such as Spain, Greece, Portugal or Ireland but in countries such as the US, the UK, or Japan among others, due to budget deficits and a big stock of public debt. This increased risk due to public debt will remain a problem for many years to come.

Besides the amount of public debt in these economies, another factor comes into play; the aging population will mean an additional cost to social security, pensions, medical care for the elderly, … this will rise even more their debt.

3 – The financial and economic problems still exist in the Euro zone:  in countries such as Greece, Spain, Italy, Portugal and other potential countries, whose financial problems are becoming chronic and won’t be resolved anytime soon despite the aid given by the European Union. We also have to take into account that Spain and Ireland had the real estate bubble, which in hand with a large amounts of private debt will be even harder to straighten up.

Some of these countries are losing competitiveness in the Euro zone, and are experimenting a negative growth. Spain, Ireland and Greece are still struggling with a contracted economy, while Italy’s is a bit more positive.

A summary of the existing problems:

a-Large deficit and public debt as well as private debt

b-Lack of competitiveness in the international market

c-Lack of structural reform

d-Lack of economic reform.

4-Important public sector debt: lets take the US as example and set the problems the country faces

-Unemployment is high and job creation is insignificant.

-The housing sector has fallen again since 2010 to 2011, with the consequent negative effect on consumption. Failure to pay home mortgages requires owners to leave their homes.

-The states government’s fiscal deficit is very high. While Europe and the UK, are paying attention to their own fiscal problems, in the U.S., politicians don’t conclude any measures.

Until this point of the presentation, we have discussed Roubini’s  global economic analysis. In the next post, there is a reference to emerging economies, entering to further analyze the current economy and future prospects in certain specific countries.

2011 Menu

12 September, 2011 No Comments

It is quite difficult to give advise but it is even harder to predict.

The fact that 2010 was characterized by the wisdom with which real estate investors operated, lead us to think that 2011 could go the same way, especially in the residential sector (heavily influenced by the lack of financing for properties that were not within the bank´s portfolio).

The engine for non-residential real estate transactions during 2011 could be malls and store space, surpassing demand for office space (mainly due to the decrease in rental income and to the turnover of some portfolio´s investors).

Due to the lack of financing many companies cannot continue to develop their regular activity, and their investment side has had to put their Real Estate assets for sale, in many cases through the common “Sale & Leaseback” method, at very attractive prices for external investors.

It is interesting to see that a crisis can also be a source of opportunities. It is especially at the end of it when one can make the best investments…. but the big question is: are we close to the end? To answer this you must pay attention to the moves investors are making.

If we take a look to the moves Amancio Ortega (Zara) is doing, we see that he is closing its SICAVs (variable income Investment Companies) to spend his money on real estate. With this money, the Ortega Family Office “Pontegadea” negotiates the purchase of buildings of financial institutions such as BBVA. This bank previously sold them to real estate fund REEF (owned by Deutsche Bank), in which BBVA went from owner to tenant. Later on, REEF started to sell these assets and, Ortega as well as many other investors, have been taking advantage of the liquidity needs financial institutions are facing, by acquiring quality properties at a discount. Besides the investments Pontegadea was doing in Spain, they are also investing in international destinations such as the US, Mexico, Portugal, France, and Germany. Pontegadea  focuses on commercial and office buildings that have long-term rental contracts, and that are located in the city’s prime location, which is the sector that better withstand the crisis (Expansión, 12/21/10)

Other great fortunes (ie. Isak Andic, owner of fashion brand Mango, who recently bought a building in Paseo de Gracia, 36) are investing in real estate. This type of investors are very well advised, and are able to see great business opportunities in the midst of this profound crisis and a broken housing market.

Read the following phrases that Albert Einstein proposed in order to overcome a crisis,