KFH organizes Real Estate Conference

KUWAIT CITY, Jan 31: Kuwait is implementing several mega development projects which will strengthen the private sector for a balanced and sustainable growth, HH the Prime Minister Sheikh Jaber Al-Mubarak Al-Sabah said in a statement delivered through Minister of Finance Mustafa Jassem Al-Shamali.

The statement was issued during the inauguration of the Global Economic Real Estate Conference organized by Kuwait Finance House (KFH) Tuesday at the Sheraton Hotel.

The prime minister in his message further noted that GCC countries have been affected by the global downturns, "and it shows how globalized the world has become."

The Premier alluded to the one billion KD investment of Kuwait Investment Authority in Real Estate portfolios around the world to highlight the authority's ability to seek out opportunities in crises.

The keynote speaker at the conference, Dr Raymond Torto, Global Chief Economist, Global Research and Consul-ting, CB Richard Ellis, spoke about the global realty market through the crisis period.

He began with an admission that there is uncertainty in the markets. Giving a general outlook based on studies by experts, Torto said the year 2012 is not going to be very different from 2011.

"The study revealed that the consequences of any crisis will last for about 5 to 10 years. And analysts are giving the impact of the current crisis at least another 4 years."

Torto said the global economy is not in good health, but it's improving though at a slow pace. "We are going to witness periods of low interest rates for a longer time, but the interest rates are not going to be lower than the inflation rates."

The chief economist also considered the effects of political changes on the economy, "with more than a dozen countries suffering changes in leadership around the world."

Coming to Real Estate, Torto said realty is currently looking very attractive, "and we can expect regulatory changes in Europe.

Torto looked at Real Estate as leasing market and capital market. To give the issue some perspective, the expert analyzed the world GDP and populations. He said that economic growth occurs either when GDP grows or when populations move.

"Fifty percent of the GDP based economic growth takes place in the west. The world's top economies are USA, China, Germany and Japan. Brazil is in the seventh position."

From the population perspective, Torto said the world has 7 billion people currently, and the West has only a small share in that figure. "If you look at the top 50 cities in GDP across the world, 8 of them are in Asia today. But in the next 10 years, 25 of those cities will be in Asia."

Torto touched upon the government debt as percentage of GDP ratio, and said Japan is worse off according to this ratio. "And there are two ways of dealing with this crisis. One is to adhere to fiscal austerity and the other is to promote economic growth."

The chief economist blamed our excessive focus on numbers at the cost of real development. 'In Asia, here is growth but the savings rate is very high.

Torto said it's a misconception that as the middle class in Asia grow, they will consume more and save less, allowing surplus capital to grow. "But that's not true; as economies grow competition for capital is also growing."

Political divide, he noted, will cause volatility. He took the example of the US congress and the divide between the republicans and conservatives. There has been progressively less agreement between them from the 60's to 2010.

"The instability in markets is a necessary condition for political leadership to make decisions.

"In real estate, global supply and demand drives the market. Over the last six quarters, the market saw demand over and above supply." Torto pointed this out to break the idea that realty prices are high and so it's not a good time to invest in it.

He referred to the 1990's when the world saw the last major real estate downturn. "People then said that they wouldn't rent another office building until 2013.

"However, by 1995, rents in the US and Europe were going up 5 to 6 percent per year." The economist was emphasizing the point that even a slow economic growth can boost realty market.

Focusing on global vacancy perspective, Torto said that in Europe, Asia and MENA the vacancy rates are low, while it's high in the US currently. "A slow growing economy is good for the commercial real estate market. Even a moderate job growth can help.

As a thumb rule to judge the changing prices in the realty market, Torto gave an equation: percent change in price equals percent change in Net Operating Income minus percent change in cap rate.

It depends on the periods, he added. "If cap rates are at say 6 percent when the economy is growing slowly, then the shift in price will be an increase to 8 percent, which is an increase of 33 percent."

KFH's CEO Mohammed Al-Omar headed a discussion that tackled the status of the global real estate market will several international experts.

Al-Omar asked about the changes that might surface after the presidential elections in the United States on the American economy.

Chairman of Cashman and Wickfield Company Goldman Steven answered by saying that there will be no changes on the economic level after the elections, since candidates from both parties agree on boosting the economy. He added that the administration must take correct steps to place the economy on the right track. He noted that the most formidable challenge that faces decision makers in America is the housing sector, despite having numerous positive indicators during the past period. He mentioned that banks in the United States are still hesitant to offer loans to the real estate sector; especially residential real estate, after the American government had bought poisonous assets. He explained that the financial crisis in the euro region has a negative impact on the choice of location for investments made by investors, where it is noticeable that some investors headed to areas that are parallel to the euro region, such as London.

Moreover, he said that American banks will not offer loans until the poisonous assets issue is solved, where he expects significant improvement in loans after this challenge has been overcome. He also expected that the American real estate market will continue to offer major investment opportunities starting this year until 2017.

Meanwhile, Head of Real estate Wealth Management at Estrat and Parker Andrew Yendel stated that London has been affected by the global financial crunch; nonetheless, it has witnessed some investments recently, where it managed to lure in investments from various countries worldwide, which made all British economists optimistic about solving the euro crisis that raised concerns about currency issue. He noted that most capitals invested in the real estate sector were exported to Asian countries that include China and India. However, London markets became optimistic after the drop in growth rates in China.

CEO of Cornerstone Real estate Consultancy Firm in Europe Ian Reed explained that the solution for the sovereign debts issue in the euro zone requires a fundamental solution, or else there will be clear social and political consequences on the euro region, not to mention the impact on investment levels.

Meanwhile, KFH Chairman Sameer Al-Nafisi revealed that this conference was never held in Kuwait and the gulf region before, and mentioned that in light of the current exceptional conditions that global markets are witnessing, several challenges have surfaced, which affects the business environment in all sectors. This requires collective thoughts and discussions to reach solutions that can guide investors. He went on to say that KFH organizes this conference as part of its pivotal role in the investment and real estate fields. He explained that global markets are going through a critical phase; especially after the series of financial challenges that forced numerous financial institutions to postpone or adjust their investment plans, in order to handle such drastic changes that have placed several countries on the verge of bankruptcy. However, despite such challenges, KFH continued to follow its balanced footsteps to open new investment channels in global markets. He noted that KFH focuses on the international real estate sector, where it managed to acquire profitable real estate to reinforce its strength in the investment field, and to offer promising investment opportunities with minimal risks.
 
Foreign policies expert Robert Kagan shed light on the current political status in the region and the world. He explained that there are three issues that have had an impact on the world since 1950 until the first gulf war, which are the rapid growth rate of the global economy since 1950 until present, where the global economy achieved average growth of 4 percent during that period, compared to 1.5 percent during the period prior to 1950. The second issue is the dominancy of one power over the world, which is the United States that has spearheaded numerous wars in the world and the region. He went onto say that the United States has a vague policy regarding whether it will initiate other wars or not, and stressed that the United States will remain the only power in the world because of its robust economy and political influence. The last issue is the spread of democracy on a wider scale in the world, where there were only five democratic countries before 1950, but now there are more than 117 democratic countries worldwide. He expressed his optimism concerning the Arab spring, and said that those countries will enjoy a better economic and political future.

Concerning the growth of the Chinese economy and the possibility that it might lead the world order, he ruled out the possibility of China's control over the world, because its economy is poor compared to the United States. He mentioned that Egypt must prioritize its economy after the revolution, since it was greatly affected.

© Arab Times 2012