What’s Going on in the World?

With the words “Global Business & Alliances Committee” in the title, one might expect the first session of Global Day to be more governance and committee updates than a comprehensive, educational and informative overview of the world economies and real estate markets. So, I joined 300 practitioners from about 45 countries to learn! (And try to win a trip to Mexico or Costa Rica…that didn’t work.)

Top Tools for Global Professionals: Global Alliances Committee

Panelists from the U.S., Canada, Brazil, Australia, France, Germany, China, and Singapore discussed the market conditions in their areas. It is apparent that each economy is recovering from the global recession at different speeds…and while most are optimistic about the improvements, there are a number of factors causing uncertainty and slow growth.

Here are some notes from the meeting – bear with me on the length (it was a 2.5 hour meeting!) but there is some good information below about the economies of each regional market:

United States Market Update
Provided by John Tucillo, Chief Economist for the Florida REALTORS®

  • U.S. economy is slowly improving, but we have a long way to go because we went down so far. In basic terms – everything that’s supposed to be going up is going up, what’s supposed to be going down is going down.
  • Ideal growth rate would be about 3%. Our current rate of growth is about half of that.
  • The current government stalemate and fiscal cliff is causing too much uncertainty in the market, which is prohibiting growth.
  • Banks (and non-financial companies) are sitting on a lot of money, but the lack of clear regulations in the Dodd Frank Act is preventing them from lending or bringing new jobs into the market. They don’t know what risks they can take, so their default reaction is to not take any and not lend except to those with pristine credit.
  • Likely that the challenges/uncertainty will exist for another 6 months or so.
  • Bottom line – the economy is limping along, recovering slowly, and likely to continue growing but not much faster than it is right now for the next 6-12 months.

European Market Update
Provided by Sven Johns, former AE of German association

  • European market is in some ways similar to U.S., but unlike the U.S. it is not one market, one economy. There are over 40 countries in Europe as a whole, 27 countries in the European Union, and then 17 countries in the Eurozone. Eurozone countries have one central bank, and are stuck to one decision on lending. The other countries have choices.
  • Because there are so many individual nations with their own economies, they are all performing differently. Some markets are in good condition and are very confident like in Germany or Austria.
  • On the other hand, countries like Portugal, Slovakia and Romania are more pessimistic. Markets are struggling. Taxes are crippling the markets of Spain and Greece.
  • Iceland was one of the countries that have been hit worst by the crisis, but 4 years later they are doing better. They have cut down debts, devaluated the currency and are back on a growing economic path. Doing better than countries like Portugal who can’t devaluate their currency. Fun fact: right now, Iceland has a competition to rename the country!

Stronger real estate markets include Ireland, Finland, and Germany.

Neutral markets – Italy, Belgium.

Weaker markets (but could also be called “markets of opportunity”) include Greece, Spain, Portugal, Bulgaria, and Romania. These are good opportunities because prices came down rapidly and are expected to recover, but the question is when. Could be anywhere from 1-3 years.

Europe is looking to the U.S. because of the relative ease of lending to the real estate markets. Though the U.S. banks are still not back to “normal” lending practices, they are cash strong. In European markets, they aren’t lending at all even though some are cash loaded again. It has to start somewhere – Chinese banks could be the first to start ease of lending, or could be the U.S. At that point we will see the rest of the world follow. Sven agrees with John that the recovery will likely be postponed.

France Market Update
Provided by Jean-François Buet – President of FNAIM

Jean-François stated that local is global, global is local. He is optimistic in the belief that the French market is a great opportunity to grow your business with innovation and take advantage of the market situation. “Together we’ll be better and stronger to achieve our goals.”

The French property market saw a slight decrease in prices between 2008 and 2009. Price values increased in 2010 and 2011, so France is really the exception in the European property market. Their debt remains the lowest. The growth potential for their market is limited because it did not go down as far as others.

Asia Markets Update
Provided by Jeff Foo, Singapore

In the East Asia and Pacific region, the economy remains strong because of urbanization in countries like Singapore, Hong Kong, Malaysia, and China. The open economy has high interest from overseas investors, and the increasing productivity in Asia will drive growth. We know China has grown for the last 20 years, but it needs to continue to grow to accommodate new challenges, and the rest of the world depends on China’s growth.

The Philippines is one of the strongest countries in the world. Indonesia will see growth of 6.6% in 2013 with property prices rising over the last 2 years, and a lot of foreign investors buying in Indonesia. Thailand was upgraded to upper middle economy in July 2012, their current GDP at 4.25% is anticipated to grow to 5 percent in 2013. Malaysia is one of the fastest growing economies in the region. Encouraging a lot of foreign buyers with a 10-year entry permit, no questions asked. Singapore is on path for growth of 2-4% in 2012. The Singapore dollar will continue to appreciate against the U.S. dollar and Euro.

China Update
Provided by Liao Jing, China Institute of Real Estate Appraisers and Agents

The real estate market in China is stable. They have not experienced a real economic depression in the last 10 years. REALTORS® and agents don’t worry about a collapsing or overheating market, they worry more about a stable market because then there is no one selling, and therefore no one buying, so no commissions! There are more than 1 million practitioners in the real estate brokerage industry in China, but only 44,013 qualified agents. There are 50,000+ real estate agencies.

Australia Update
Provided by Pamela Bennett, President of the Real Estate Institute of Australia

The Australian population is 22.3 million, and their economic fundamentals are strong. Unemployment is at 5.1%. It looks healthy on a global scale, but they are really running a two-sided economy and Australians are cautious. Consumer confidence has been low for several consecutive quarters, and it is taking its toll on real estate. Sydney average home price is $642,500 (Australian dollars). Average time on market in Sydney is 66 days. High-end properties are primarily sold by auction. The average loan size is $317,000 (the lowest it has been in a decade).

Brazil Update

Brazil has 270,000 real estate agents in 26 states to serve a population of 192 million – there is a shortage of skilled professionals and a lack of proper infrastructure to support the quick demand. Brazil is one of three major destinations of investment (along with China and the U.S.). The housing deficit in Brazil is 11 million households! 89% of those are on the lower level of the social pyramid. New technologies to build faster will have greater acceptance.

They recently celebrated the 50th anniversary of the real estate profession in Brazil!!

Canada Update

Though neighbors and culturally similar, there are a lot of differences between the U.S. and Canada. There is a lifetime capital gains tax exemption in Canada, and no mortgage interest deductibility. Mortgage interest rate is typically locked in for 5 years, compared to 30 years in the U.S. Longer rates are available but they don’t extend beyond 10 years.

The Canadian market is in the midst of a soft landing after regaining ground lost during the recession. They did not relax their conservative lending practices. Canada and the U.S. are at different places of the economic cycle. Since the recession bottomed out in 2009, economic growth has been stronger in Canada. In early 2011, Canada recovered all the jobs lost during the recession, and has actually added 2% more jobs. The credit market cycle is also different. It is hard to get a mortgage in the United States, however there are clear signs it has begun to thaw. Canada mortgage financing has been increasingly tightened.

Is the Canadian housing boom over? Yes. However, Canada is not facing a market crash. There is stability for sales activity and prices. Interest rates have remained at extremely low and buyer-friendly rates. Sales will rise this year but are predicted to fall next year.

Whew! That was a lot of information in one session, but pretty rare to hear updates on the world real estate markets from leaders in the profession all at once!

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