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The ongoing crisis in global credit markets is having a profound impact on various sectors of the real estate market.
Since the crisis arose from structured real estate finance products in the US sub-prime mortgage market, real estate pundits watch and wonder where and when the credit market crisis will hit next.
The crunch has clearly had a negative impact on highly leveraged real estate players, and the banks which lend to them, resulting in frozen or renegotiated loan commitments and, in extreme cases, forced sales.
The wide-ranging effects of the crisis can be felt from office projects in London to residential developments in Kazakhstan. Concern over the possible effects of a recession in the US on global real estate markets is becoming an equally important concern.
In the midst of all of the uncertainty, certain players are finding ample opportunities. Sovereign wealth funds are using their vast reserves of cash to buy stakes in companies and assets, and this should have a limited cushioning effect in certain real estate markets.
Large international players who don’t need access to cheap debt are happily watching as real estate assets are re-priced and yields rise.
While it is likely overall investment activity will slow this year, these players will likely dominate the real estate sector until traditional debt providers are able to begin to work through their pipeline of financings.
Beyond core real estate markets, the world’s buoyant emerging markets continue to be star performers and are increasingly becoming the target of the strongest players.
In particular, South East Europe, Russia, India, Turkey, Ukraine, China and South East Asia continue to attract unprecedented levels of international real estate capital that is attracted to their high levels of growth and favourable demographics for real estate and infrastructure investment.
Opportunity funds, private equity players and large diversified corporates that don’t need access to significant options of leverage are targeting emerging markets which provide ‘real’ growth environments which are being found in multiple real estate sectors in capital cities and increasingly in regions with large secondary and tertiary markets.
The weight of capital in these markets continues to outweigh available quality product so yields should be supported as weaker players are weeded out from bidding.
It is unknown as to whether or not emerging markets are sufficiently ‘de-coupled’ from developed markets teetering on the edge of recession.
In the meantime, emerging markets continue to provide fertile ground for the world’s largest international real estate investors and their local partners in these uncertain times.
Eric Rosedale, co-chairman of the global real estate group, Salans