U.S. real estate going global
Real estate demands in China and India draw international crowd
Monday, July 16, 2007
The U.S. real estate industry has increasingly global ties, according to a report by researchers at the University of California, Berkeley, with residential brokerage companies, developers and others pursuing international expansion in fast-growing markets.
“Globalization of the real estate industry is now a fact of economic life,” according to the report. “U.S. firms, along with firms from many other countries, find themselves facing major opportunities and challenges in the suddenly global real estate market.”
Produced by researchers at the university’s Fisher Center for Real Estate & Urban Economics, the report notes that globalization increasingly has involved the service sectors in the past decade, “and the various subsectors of the real estate industry have been enthusiastic participants in this global surge.”
“Builders, brokerage firms, consulting and services firms, real estate finance firms and investors have extended their area of operations beyond local markets to a worldwide base,” according to the “Globalization and Real Estate: Issues, Implications, Opportunities” report.
“Even residential real estate brokerage firms have followed an increasingly mobile expatriate population into the international arena, forging alliances with companies throughout the globe to provide relocation services and worldwide access to residential markets. Additionally, the emergent middle-class in Asia and elsewhere with their pent-up demand are boosting residential and retail real estate activity, providing a new range of opportunities for forward-looking U.S. firms.”
Some major U.S. residential real estate brokerage company brands — including RE/MAX and Realogy’s Century 21, Coldwell Banker and ERA franchise brands — have worldwide operations, for example. RE/MAX has operations in 65 nations, while Century 21 has operations in 46 countries and territories, and Coldwell Banker has operations in 31 nations.
The report also cites a study of U.S. real estate firms that found residential real estate brokerage and management companies were the least likely to be internationally focused compared to other types of U.S. real estate businesses, such as construction and development companies, real estate financing companies and real estate investment trusts.
And based on a study of data for a sample of 326 real estate industry firms, “only 13 percent of the large real estate firms listed … had global operations beyond the United States,” and most of the companies were more likely to be active in Europe, Canada or Mexico than in Asia, the report states.
A separate analysis of 44 large real estate finance and service firms conducted by the U.C. Berkeley center found that Asia was the region most frequently mentioned for future regions under consideration for expansion, followed by Mexico and Canada. This group of companies was most likely to already have international operations in Europe and Asia, the report noted.
The future of the U.S. real estate market is increasingly tied to construction activity in Asia, the report states. “China has become both a leading producer and consumer of many building materials, and questions exist as to whether growth will lead to excess capacity or excess demand in coming years. Either could significantly affect the building process and real estate prices in the United States.”
Foreign direct investment in U.S. real estate and U.S. direct investment in real estate abroad is underestimated by official data, the report states, though both categories have been growing for at least the past four years.
Non-U.S. entities own about 15 percent of total U.S. equities outstanding, according to the report, and also “play a big role in U.S. credit markets,” with more than a 14 percent share of total U.S. credit market debt held by non-U.S. entities as of 2006.
Out of a total of $6.6 trillion in overall outstanding agency debt and securities issued by government-sponsored entities such as Fannie Mae and Freddie Mac, about 18 percent is held by foreign entities, the report states.
Among the top-10 foreign holders of U.S. agency bonds as of June 2005, China had the largest foreign share at 20 percent, followed by Japan with a 15 percent share and Russia with an 8 percent share.
And for treasury bonds, Japan had the largest foreign share at 35 percent, followed by China at 16 percent, Taiwan at 4 percent, and South Korea and the United Kingdom at 3 percent apiece.
Technology centers are growing up in Bangalore and Hyderabad in India, the report states, and in several cities in China.
“The off-shoring of white-collar jobs from the United States to India has gathered steam in the last decade or so, joining the out-migration of blue-collar manufacturing jobs to China. This has implications for real estate on both sides of the off-shoring divide,” according to the report. “The increasing possibilities of global sourcing more broadly have the potential of impacting urban space, form and structure, and consequently, the demand for real estate.”
The demand for residential real estate is surging in urban areas of India and China, the report states, as the majority of the population in those countries resides in rural areas — a contrast to other major industrialized nations.
“U.S. real estate developers, services and consulting firms have piggybacked on the major foray made by U.S multinationals into India and China,” the report also states, “and have been instrumental in dealing with demand for all categories of real estate, both for purely business purposes, as well as for housing requirements of (expatriates).”
U.S. construction firms have had only a limited role so far in India and China, the report states, and the development boom has attracted companies more from the Asian region, though “the past couple of years have seen a significant increase in U.S. interest in the region.”
Financial reforms in India and China “have resulted in greater availability of mortgages at the relatively low, global interest rates” in those nations, according to the report, and experts in some Asian nations are looking to the model of the U.S. mortgage market, including its range of mortgage products and its secondary market for mortgage-backed securities.
A separate paper that is now in the works by U.C. Berkeley researchers explores the impacts of foreign financing on U.S. interest rates.
“There is a general consensus that the major purchases of credit market instruments by foreign investors have been a factor in keeping U.S. interest rates low, but there is a range of opinion regarding the potential vulnerability of the U.S. financial system, in general, and the future course of the dollar, in particular,” center researchers reported.
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