In a sharp contrast with current U.S housing sector, where home prices may fall by as much as 30 percent from their peak in 2006 and not hit bottom until 2010, (as today predicted by a credit analyst and managing director at JP Morgan, a view which I don’t personally share as a little too bearish, but one nonetheless worth reporting) in emerging economies – real estate markets remain hot.
According to Herald Tribune, while the global credit crunch sent property prices reeling in developed markets from the United States to Spain, it appears to have done little to slow the real estate sector in places like Brazil and Russia, countries still thriving on a commodities boom and increased access to mortgage financing.
Growing urbanization and rising incomes are fueling property demand in the countries with the four largest emerging economies: Brazil, Russia, India and China, known as BRIC.
Low interest rates in countries whose currencies are pegged to the dollar, like the United Arab Emirates, and a shortage of homes and offices are keeping real estate values there at records, too.
“The credit crunch has very limited relevance to many emerging markets”, said Jonathan Garner, head of emerging markets strategy at Morgan Stanley. “Not only are the banks in good shape, you’ve also got households that are not overextended.”
The ratio of household debt to gross domestic product in the BRIC countries ranges from 5 percent to 10 percent, compared to more than 100 percent in Britain and 90 percent in the U.S.
Unlike their counterparts in developed economies, banks in most emerging markets are largely unaffected by the liquidity squeeze set off last year by huge subprime mortgage defaults in the United States. This has resulted in US investors looking to gain exposure to other real estate markets around the world.
Cross-border property investors originated from 50 countries in 2007 and U.S.-based buyers were the most active making over $70 billion.
The current situation in the US is also making it more appealing to emerging market investors to invest in the US. According to the 2008 annual survey of the Association of Foreign Investors in Real Estate (AFIRE), the US was deemed the “most stable and secure” country for real estate investment and the country with the best opportunity for appreciation, followed by the emerging markets.
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