Summit Notebook
Exclusive outtakes from industry leaders
from Sakthi Prasad:
From coffee beans to brick buildings
M.R. Jaishankar, chairman and managing director of real estate firm Brigade Enterprises, the youngest of 12 siblings, started his career in the family business of growing coffee beans.
But after a nasty labor dispute, which resulted in the burning down of his factory in 1984, he saw an opportunity in the real estate business in the then sleepy Bangalore city -- and tasted big success.
Jaishankar said his first real estate loan of 10 million rupees in 1984 was considered so large that it had to be approved by the bank’s board of directors.
In contrast, he said in today’s IT-driven Bangalore, a loan of 10 million rupees could be approved at the level of a branch manager.
Perhaps even possible that people do sign such a deal these days over a cup of coffee?
from Sakthi Prasad:
Real Estate – To invest or not
Everyone of us has our own ideas about a dream home and usually wonder if it makes a good investment or not.
But for Abhijit Mukherjee, president of the pharma firm Dr. Reddy’s, the choice is very clear -- He is not a big fan of real estate investment.
While speaking to Reuters journalists at the India Investment Summit in Bangalore, Mukherjee cited the American example of a recent real estate crash and wondered whether India, too, is headed in the same direction. He said buying a house and holding it for value appreciation over a number of years is not a good idea.
Notwithstanding his skepticism, he said he is thinking of changing his apartment. But he was quick to add that it is not a very exciting investment.
Mukherjee would rather park his money in a high-risk, high-reward investment like equities.
A bubble in the real estate market?
Have you tried buying or renting a house in Mumbai recently? If so, then I won’t be surprised if you think real estate prices are plain expensive, and incredibly so. But that’s almost always been the case in India’s commercial capital. After all, when was the last time someone told you they got a cheap house in the city?
So is the real estate market in a bubble? We asked Adi Godrej, the man who controls Godrej Properties, if things could get bubblicious. This is what he had to say: “I don’t think we are in a bubble, because demand is strong, but we could get into a bubble.”
Godrej, whose family fortune is estimated to be about $5.2 billion, doesn’t really care if prices go up in south Mumbai’s old-money neighbourhoods such as Malabar Hill or Altamont Road, where Reliance Industries chairman, billionaire Mukesh Ambani, is building a 27-storey $1 billion home.
“I would be more disturbed if middle-level and lower-level housing in Mumbai were to go up much,” Godrej told the Reuters India Investment Summit in Mumbai.
Godrej Properties, which is developing a lot of what is termed ‘affordable housing’, expects revenue to jump more than 50 percent in the fiscal year ending in March as rising incomes boost demand for housing.
If prices continued to increase at current supply levels, the Indian residential market could head into a “bubble.”
The company, part of the $2.5 billion diversified Godrej group, defines ‘affordable housing’ as an apartment that carries a price tag of less than 2,500,000 rupees or $50,000. Is that within your budget?
from Raissa Kasolowsky:
Dubai is super enough, thanks
Dubai has sufficient superlatives – record-setting landmarks unique in their size, cost or concept -- to last it for the next decade – so enough already, says Deyaar CEO Markus Giebel.
“I endorse having the tallest building in the world, the first seven-star hotel in the world, the palm,” he says. “What I don’t endorse are attempts to now outdo these superlatives…they are going to last us the next 10 to 15 years.”
Dubai is home -- amongst other attractions -- to the world's largest indoor ski slope, the world's tallest tower, and the world's first, albeit self-rated, seven-star hotel that also sports its own Rolls Royce fleet and helicopter landing platform. The global financial crisis brought a real estate boom in the emirate to a screeching halt, leading to a raft of new, hugely ambitious projects -- including a 1-km high tower and the world's largest mall -- to be shelved or delayed.
AUDIO – Real estate’s ugly confluence
All week, we have been meeting real estate executives at Reuters Global Real Estate Summit who have discussed the many different areas of concern that have spread throughout the sector.
Some have spoken about deleveraging. Some have told us about the shrinking of values. Others have said it’s a confidence game — as in, there isn’t any.
But J. Allen Smith, chief executive of Prudential Real Estate Investors, brought it all together for us quite nicely.
In Smith’s view, the real estate universe is subject to a confluence of all the above-mentioned problems and a few others as well. He sees it as a unique time and does not see a rebound for some time.
It’s a daunting time to be in the industry, for sure, but at the end of his comments (which you can hear by clicking on the link below) he is starting to see a glimmer of hope here and there. After the past couple years, even a glimmer is a pretty welcome thing.
Smith was one of our featured speakers at this year’s summit, which continues through the end of this week. Reuters has exclusively interviewed guests in our offices including New York, London, Shanghai, Mumbai, Sydney and others this week.
For more on Smith’s comments, please click on the attached link right below:
Smaller cities’ real estate to stall- what are your town’s prospects?
New York and a handful of other major U.S. cities are down, but will never be out as far as their commercial real estate goes, a leading New York real estate private equity investor said Monday at the Reuters Global Real Estate Summit.
“New York’s not going away- it’s THE global city.”
Second tier cities are another matter entirely, said Thomas Shapiro, president of GoldenTree InSite Partners. “We are a big believer in the big city theory which is that the bigger cities will continue do better, to the detriment of secondary cities.”
Companies always go to where the best talent is, he explained, meaning cities such as his big five– New York, LA, San Francisco, Boston and Chicago– remain magnets, their status self-perpetuating
“Goldman Sachs is not moving to Miami because the intellectual capital is in New York- ditto Boston, ditto San Francisco, ditto LA.”
Here’s Shapiro’s prognosis for how some other U.S. cities will fare as the real estate market recovers:
San Francisco: one of the top markets, Shapiro said, because “San Francisco has a diversified economy.” Chicago: “It’s a boom and bust town, but it is an important center.”
AUDIO – A new emerging market for real estate
Remember the good old days where — if you lived in the United States anyway — people would talk about “emerging markets”?
We’d nod our heads knowingly, wishing these poor folks the best as they tried to accumulate the swell things we had bought for ourselves. We knew that residents of Mumbai or Caracas or somewhere would never attain the great things we had in such abundance here in the good old USA (Hummers; his and hers monogrammed dishtowels; zero down, 110% mortgages on houses we couldn’t afford … that kind of stuff), but we still wished them well.
So, here we are in 2009 and at this year’s Reuters Global Real Estate Summit we find that the new emerging market is … well, it’s right down the block.
According to our guest Tom Shapiro, president of GoldenTree InSite Partners private equity investment firm, the new emerging market in the real estate world is the United States.
Shapiro, in a lively discussion, spoke glowingly about his firm’s recent new business in Brazil and about other opportunities he was seeing outside the United States. But, while he said his firm had not made any investment in the U.S. in about two years, he was starting to look for opportunities and see some enthusiasm for deals to get done.
Shapiro said it was still to early to decide what inning the real estate meltdown was in, but he was starting to see some interest from the sidelines about what the “next big thing” would be — and with cities like New York, San Francisco and Boston as potential growth engines, he was a little hopeful.
Optimism this week has been pretty thin in the real estate world, so we need to take it where we can get it.
AUDIO – Pulte Homes and the Cycle
It’s not a motorcycle or a unicycle – we’re talking the overall real estate business cycle.
While the bulk of the focus at this year’s Reuters Real Estate Summit is on the commercial real estate side of the business, Richard Dugas, chief executive of Pulte Homes, spoke to us about how things look on the residential side of the aisle.
It remains pretty rough out there.
Dugas told us it was still difficult to predict where things stood and how the rest of 2009 would shape up, but he did sound somewhat hopeful that the sector had leveled off from its dramatically depressed levels seen during 2008.
The confetti was not going off and there was no champagne being passed around just yet, but after a ride south that the residential real estate and building industry has seen, “not getting much worse,” sounds a lot like “better”.
Dugas was one of the featured speakers at our annual Real Estate summit, which this year has guests across the globe in centers including New York, London, Beijing and Kuala Lumpur.
To hear Dugas’ comments, please click on the link below:
from Global Investing:
Clear road ahead for depressed Dubai
Dubai's deepening real estate slump has brought unexpected benefits to its time-poor urban residents.
Speaking at the Global Islamic Financing Summit, Dr. Humayon Dar, CEO of Shariah-compliant consultancy BMB Islamic, said Dubai was a much nicer place to live now that the immature infrastructure system was not overwhelmed with construction traffic and armies of property speculators.
"When you got to Dubai you will find that right now, traffic is actually much less but people like me like it because I used to be stuck in that traffic all the time," Dar said, eyes agleam. "But now, going from A to B is so fun - I like it."
The desert city - famed for its dramatic skyline and commonly referred to as the Gulf's biggest building site - is reeling from a global meltdown in demand for its unique brand of luxury real estate. Dozens of development projects worth billions of dollars have been axed, threatening the livelihood of thousands of construction workers and their families.
But those banking on a rapid rally in Dubai's property market can draw some comfort from Dar, who believes the city will recover quickly -- with a little help from its wealthy neighbours.
"People who know the market say actually this is the time to invest... In the past whenever there is a problem in Dubai, the big brother sitting in Abu Dhabi comes to rescue. This time they took their time because they wanted to teach a lesson to Sheikh Mohammed because he was trying to be a renegade boy.
"Many people say Dubai is just gone, hopeless. But Dubai will never, ever go away. It has achieved a level of economic development which will help him to come out of this crisis...My own assessment is that the worst is over," he said. "That is a statement you wouldn't hear from very many people."
Is Dubai real estate downturn reason for sukuk slump?
This week we had the opportunity to speak with Mohsin Khan, Senior Fellow at the Peterson Institute for International Economics and the former head of the Middle East department at the International Monetary Fund, ahead of the 2009 Reuters Islamic Banking and Finance Summit. I asked him why he thought that the once red-hot market for Islamic bonds had slowed to a trickle. Khan says some of the largest issuers of Islamic bonds, or sukuk, were real estate developers and the reason corporations are reluctant to buy or issue sukuk these days is due in large part to the continuing decline in the value of real estate in Dubai. Click below to listen:Kahn on sukuk issues from Reuters TV on Vimeo.
