Will the BRICs’ Housing Boom Last?
08/27/2008 12:00 am EST
Vivian Lewis, editor of Global Investing and Right Side Alerts, wonders whether real estate can withstand inflation in emerging markets.
Readers have recently asked me if I believe that the property booms in China, India, and Russia will continue. Higher interest rates are stifling inflation in all three countries and will inevitably increase the cost of borrowing money to buy condos in St. Petersburg or the suburbs of Shanghai of Mumbai.
But real estate is a proven haven against rising prices. Having said that, I think some of the buy-to-let mania that afflict China and Russia are likely to slacken. (China has seen 28% annual rises in property values and Russia 10% increases in the last couple of years-Editor.)Some of the fluffiest pre-construction apartment sales may turn sour as interest rates rise.
But for normal upwardly mobile Chinese or Russian city-dwellers, buying an apartment is not only smart; it is a major positive lifestyle choice. And because other Chinese investments are producing weak or negative returns, buying a condo makes sense. Many Chinese remain skeptical about official inflation figures in any case, not without reason.
In Russia, you can get a decent return on your savings with less-than-stellar banks, but at a risk. And the stock market, boosted by oil and gas shares, is doing relatively well in the world downturn. (The Russian RTS Index has risen 7.4% in the past 52 weeks, although it fell sharply in July-Editor).
But property still appeals. Young city dwellers want desperately to get out of the multifamily apartments of the Soviet era. In all three countries which I visited in the last year, the rise of the middle class is visible and powerful. The demographics are favorable. Newly affluent people are the fastest growing component of the population. And before they buy diamonds or gold, they will buy an apartment.
We are playing the condo card in both India and China. Our Indian REIT from Singapore is Ascendas India Trust. It trades like a penny stock but is actually well managed and regulated, but it is priced for Singapore. ACNDF.PK is the US variant. The Chinese stock Xinyuan Real Estate (NYSE: XIN) is a developer rather than a REIT, specializing in apartment complexes at the outskirts of medium sized Chinese cities.
I did not find a vehicle for investing in Russian city property development, but I will seek one out. For the eastern European shopping experience, we already have an Israeli firm Elbit Imaging (Nasdaq: EMITF), which, improbably enough, is creating shopping centers and is building a Vegas on the Danube in Budapest.