By Neville Bennett This is the first time since World War II that the global economy has not grown; it is also the first time that property in emerging markets has recorded plummeting capital values. I stumbled by happenstance upon my source: the Royal Institute of Chartered Surveyors (RICS) because I was advising a prospective buyer to get a property thoroughly checked. The RICS site has excellent evidence for global commercial and housing property and even South Island farms. Global Commercial Commercial property is a disaster in the US; losses equal about 30% since 2007 since cheap finance disappeared and the recession reduced occupancy. George Soros predicted this month that it had another 30% to go. RICS is valuable because it has global coverage, and its compilers note that recession-resisting localities like UAE, China, Turkey and Brazil have succumbed to a sharp turn-around in lettings. It is interesting that Asia was again the hardest hit region in Q4 2008. I first picked this up some months ago in air cargo and passenger data. This is significant as Asia is often regarded as the region which will lead the recovery. Rents fell most in the world in Taiwan, Hong Kong, Singapore and India as the collapse in world trade has "smashed export earnings and business confidence".
The fall in oil prices has had a marked effect too upon the Middle East and Russia: both have had sharp falls in values and confidence. The areas of Eastern Europe with the greatest problems in servicing the current accounts like Turkey, Hungary, the Ukraine and Poland have seen massive accelerations in the decline of commercial property prices. Respondents also expect further falls in the US, Japanese, and Australian markets. The strongest market was Germany where tenant demand and rents are relatively resilient. There is a lot of convincing detail in the RICS survey. It publishes data from previous periods, revealing how quickly the rout is moving. Tenant demand has seen its sharpest reversal in emerging markets. Available space has increased globally for the first time, rental expectations are down everywhere but especially in emerging markets. The survey has fine graphics and splendid detail on retail, industrial etc in every region. UK Housing Market Like the Halifax survey, the RICS survey for UK market is showing tentative signs of improvement. New buyer enquiries have risen for the fifth consecutive month leading to both newly agreed sales and sales expectations. But new instructions are declining, as is the inventory on estate agents books. Prices are still falling, 17% year-on-year and nearly 2% in March. RICS picks transactions to increase but is reconciled to a further drop in prices of 10%-15% in the course of 2009. It also predicts a record low in new starts. Construction in private housing, commercial and industrial have declined at the fastest pace in the survey's history (1994). Profit expectations are also at record lows. US Construction The US construction sector has plunged further than the wider economy. Even in late 2007 RICS data showed an 11% decline in construction when the overall economy was still growing at 2%. This was its worst performance since 1982. Conditions have since deteriorated, and RICS predicts construction output to fall a further 10%-14% over 2009. Non-residential will feel the most pain, although sectors like highways, Public Safety and power infrastructure may expand. New home sales are 78% below their peak. There is no reason to expect sales to increase as sales in January were down 15% on sales a year before. As foreclosures increase, sales of existing homes will dominate markets. Prices are expected to fall because of job insecurity and the potential for further falls is deterring home buyers. Building permits are 44% lower this year, and the number of permits converted into housing starts has declined. In commercial property the downturn "has much further to run". Job losses are horrendous. Between September and December 2008 alone 265,000 construction workers lost their jobs. This was 17% of all job losses although construction normally employs 7% of the US workforce. Altogether 874,000 construction jobs have been lost since the April 2006 peak. Things may get worse because the National Association of Business Economists forecasts a fall of 3.2 millions jobs overall in 2009, which could imply the loss of another 220,000 construction jobs. A survey of US builders points to a bleak outlook, with sentiment at "rock bottom". Residential housing is in freefall and commercial property constructions numbers are "skewed to a more pronounced deterioration." (http://www.rics.org/) NZ South Island Land Prices RICS also holds conferences. In March, at Cambridge, Chris Eves of the Queensland University of Technology presented a paper on rural land in the South Island 1990-2007. Eves' major concern is to develop an investment performance index. Eves follows a good methodology to classify rural property sales and remove non-commercial transactions. This lowered the number of sales from over 100,000 to 42,000 between 1990 and 2007. The sales were then split into six categories; Arable, Dairy, Forestry, Horticulture, Pastoral, and Special Use. Pastoral sales were more than half of sales. Forestry was more important in the early 1990's but lapsed into low activity. Interestingly, horticultural land is the most expensive but increased only about fourfold 1990 to 2007, from $22,000 per hectare to $87,000. Eves suggests a shift to wine was the main driver. The winners were pastoral farmers: pastoral land prices increased 13 times from $938 in 1990 to $13,000 in 2007. Dairy increased from $4,200 to $24,000 per hectare. Over the last 10 years, forestry land rose the fastest, largely because it was used for more profitable purposes. On a simple average, annual return on South Island land was 17%. Farmers were not just interested in capital gain; they chased profitable crops and endured negative returns in 1992, 1999, 2000 and 2007. Land fell cumulatively by about 10% in the three years 1998-2000. Results were skewed by Greenspan's liquidity creation. Prices leapt 69% in 2002 and 37% in 2003. Growth stopped in 2006 and a fierce correction is occurring. "”"”"”"”"” * Neville Bennett was a long-time Senior Lecturer in History at the University of Canterbury, where he taught since 1971. His focus is economic history and markets. He is also a columnist for the NBR where a version of this item first appeared. email@example.com www.bennetteconomics.com http://www.rics.org/NR/rdonlyres/70C5E839-F1B6-4B29-84D6-F7D478C2092D/0/DevelopingarurallandinvestmentperformanceindexforNewZealand.pdf http://www.rics.org/NR/rdonlyres/EFA7A3D1-1B1E-459F-89C0-EF5E53981A6B/0/PresentationChrisEves.pdf