Global transaction volume was down around 28% over the year, cutting across most property types and markets, particularly in EMEA and Asia Pacific. However, the US and Hong Kong posted strong gains. Cross-border investment also increased. In terms of top markets, London, Tokyo, New York, Hong Kong and Paris ranked among the top five.
Debt financing is expected to be more constrained, particularly in Europe, as banks continue to pick their spots carefully. Lenders are pulling back as pressure mounts from maturing real estate loans and banks are forced to hold more capital against those loans. Given the amount of troubled loans, some of the biggest sellers in 2012 could be the banks.
All eyes are on Europe. When the euro began in 1999, member states were supposed to ensure that debt did not exceed 60% of their GDP. Yet 14 out of 27 countries in the European Union had public debt exceeding 60%; at the top is Greece. Spain, Portugal, Italy, Ireland and Greece relied on banks in countries with stronger economies to finance their budget deficits for a long time and now some of these countries are beginning to have problems of their own. European Central Bank encouraged banks to buy the debt; banks borrowed over $1 trillion between Dec. 21, 2011 and Feb. 29, 2012. Now the challenge will be to implement needed austerity measures in the wake of little or no growth. The IMF, which expects the Eurozone to contract, said if Europe doesn't get its act together, it could shave 2% off global growth.
As debt financing becomes more constrained, new debt platforms are beginning to emerge. New regulatory changes have made real estate lending more expensive for banks and more attractive for insurers, on the other hand, to lend on real estate.
So the global economy appears to have been pulled back from the edge, but there's a lot looming on the horizon.
Asia is not immune to what's happening around the world, but there's optimism because the market fundamentals appear to be pretty solid. Growth there is expected to be three times faster than the rest of the world. China is witnessing an unprecedented period of city-building and modernization. Though China pared down its economic growth target to 7.5%, it's a slowdown they engineered. Issuers from Greater China made up over 46% of global IPO value. China's 25-year plan is essentially building the US in 25 years.
Mexico and Brazil are the strongest economies in Latin America, and they're expected to gain more speed during 2012. The momentum should continue as the US economy starts to strengthen.
Anything with the name "Brazil" on it is generating interest. Brazil has attracted massive foreign investment for real estate. Growth is projected over the next two years as they gear up to host the 2014 World Cup and the 2016 Olympics.
US GDP has slowed to 2.2%; however, most economists believe the slowdown is temporary and we should see a pickup in the second half of this year. Although US consumer confidence fell in April, it's still 40.9% higher than the trough it had in 2011. US home prices remain at a 10-year low as an incredibly high inventory of distressed homes works its way through the system. Something meaningful needs to happen on the job front before any movement is seen in real estate.
Shifting world demographics will determine what you build, where you build it and how you fund it.
On one hand, US baby boomers are retiring at a rate of 10,000 per day. And the Europeans are not getting any younger, either. Even China's population is aging very rapidly, and is expected to peak in 2026. That's going to impact the labor force and their savings and draw more on already stressed government programs.
On the other hand, global urbanization has been unstoppable. More than half of the world's seven billion people live in urban areas. By 2050, that number grows. There's an explosive middle class that's putting money in the hands of people who didn't necessarily have it before. And they're making buying decisions, which will drive real estate demand.
India's GDP has increased at a compounded rate of 8% from 2006 to 2010. They have a young, educated work force that makes India very compelling.
Of the world's 10 fastest growing economies, seven of them are in Africa, making Africa high on the agenda of global investors. Foreign investment into Africa has grown at a compound rate close to 20% since 2007.
Given Russia's natural resources and the large amount of liquidity inside the country, the outlook for the next 12 to 18 months is positive, which is attractive to foreign investors.
In the Middle East, political and social unrest have put many key decisions on hold. However, the outlook is brighter and markets in the UAE, Dubai and Saudi Arabia are starting to see more activity.
Emerging markets certainly have their challenges including foreign exchange risk, legal and regulatory risk, transparency, complex labor laws, evolving tax policies and cultural considerations. Also, significant investment will be needed for infrastructure to accommodate future growth. Having the right partner or advisor on the ground to help navigate these challenges can really make the difference.
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