The real estate fever comes to emerging markets

WARSAW-When David Mitzner visited Poland in the late 80’s, he found what every real estate  entrepreneur dreams about: a chessboard composed of empty land and used little offices, warehouses and factories, and little competition from other investors.  But when seeking financing in the United States, he felt as if he was promoting real estate “on the moon.”
Today, the Polish real estate market has so much foreign capital only high investments will get high returns. 

 According to Cushman & Wakefield Inc  from New York, last year foreign investment in the Polish real estate market reached $ 3,500 billion, twice as much as in 2004. 

 The new investors will have to make do with annual returns below 7%, not much better than profitability in Western markets, and significantly lower than the double-digit returns that Mitzner harvested at the beginning. “There is nothing to buy” in Poland at reasonable prices, “laments Mitzner, an octogenarian businessman from Houston, who emigrated from Poland to the United States, after the Second World War.  So now it has begun to examine the markets of Russia, Ukraine and Romania in search of more lucrative business.
In 90 years, global investors chasing high returns were devoted to the stock markets.  When these markets sank, capital turned into commercial real estate, raising prices and reducing returns in the major markets of the United States and Western Europe.  Today, a new wave of capital provided by private funds and pension US and Europe, is flowing into the market until recently considered marginal, such as Poland, the Czech Republic, Mexico and China. And as prices in these markets go up, investors, hungry for higher rates of return, have begun to move markets even less predictable, such as Russia and Bosnia. Some investors are looking to Latin America. Comparing the real estate market in South America with regions such as China and India, they are areas that have a great potential for growth, but it could take up to ten years before producing results.  A recent report describes the long-term growth of these markets as “potentially significant” because rents probably will grow quickly.
The pension fund for public employees in the state of California has made a number of investments in countries such as Brazil and Mexico, through investment funds with local experience. 

 In Mexico, the Californian fund is investing $ 150 million through Prudential Mexico to construct buildings that were put up for sale and has disbursed $ 95 million to develop alongside Hines Mexico commercial premises and homes in Guadalajara.

 In the middle of last year, the fund-the largest US pension fund - invested an additional $ 95 million with Hines Brazil to build office buildings, industrial sheds, shops and housing for low-income families. Michael McCook, which manages the real estate investments of the fund, hopes that these enterprises will produce returns in excess of 15% annually.The theory behind these global investments is that as these nations stabilize and modernize their economies, they become safer places to invest in real estate. 

But the history of the real estate market is riddled with ups and downs cycles, and many investors and industry analysts believe that the current pace of price increases cannot be sustained for long.  “Everybody knows that there will be a downward correction in the next five years, but we don’t know when,” says Richard Barkham, director of studies Grosvenor Group, a property manager based in London.
Quinlan Private, an investment Irish fund competed against only a couple of investors when acquired two office buildings in Warsaw in 2001.  I recently had to compete with more than a dozen investors to buy 50% of a shopping mall in Krakow for $ 83 million.The first operation gave a return of 9%, the second of 7%. 
However, most of the real estate investment markets still go to more established and less risky countries, such as the United States and other Western countries.  There, investors are accepting increasingly narrow margins.  In some cases buying properties-trophy that barely generate sufficient revenue to cover expenses. The royal family of Dubai, for instance, last year paid $ 705 million for a building in Manhattan, and $ 250 million for one in London. But their annual return will be only 4% to 6%, only slightly higher than the return on American Treasury bonds. Source: The Wall street Journal