Global property investment at a turning point

By William Kemble-Diaz

LONDON (Reuters) - Global real estate investment is still buoyant but a few cracks are starting to show as higher borrowing costs begin to bite, making 2007 a pivotal year after an extended bull run in property prices.

Future trends will be a key theme for top executives from the world's property industry at the Reuters Real Estate Summit, which is being held in London, New York and Singapore on June 25-27.

A bullish mix of surging rents, cross-border investment, capital values, and shrinking or stable yields remains intact in many parts of the world, where the amount of capital chasing investment opportunities still exceeds the amount of physical stock available.

But worries over U.S. subprime mortgage loans and Spanish housing, tighter Chinese regulations, cancelled property company flotations, and weak debuts by British real estate investment trusts (REITs) suggests the market is at a turning point.

"This year is the same as last year and the year before because people expect property returns to remain strong but to then fall off sharply in the following year," Peter Hobbs, global head of real estate research at RREEF, part of Deutsche Bank and one of the world's biggest property fund managers.

"However, there are now more and more signs of that eventual sell-off, and the recent spike in bond yields increases the risk that the slowdown in property performance starts to occur before the end of the year," he told Reuters in a telephone interview.

Soaring prices in some Asian hotspots, such as major Indian and Chinese cities, have provoked fears risky bubbles are forming and price corrections are on their way. In China, the government is trying to cool the market with a raft of measures to deter speculation, including taxes and interest rate rises.

But in India, an influx of foreign funds has helped double property prices in Mumbai and New Delhi over the last two years.

Funds are becoming much more cautious and are increasingly eyeing up investment opportunities in distressed assets.

"There's not much room any more for further yield compression," said Robert Lie, chief executive of ING Real Estate in Asia. "What we're saying is you cannot just buy anything in any country, and assume values are going up."

THE AGENDA

Among the highlights of the Reuters Summit in Singapore will be a rare interview with Ngee Huat Seek, head of GIC Real Estate, the property arm of Singapore's Government Investment Corporation, which has investments across the globe, as well as executives from prominent players in China -- Hong Kong's Cheung Kong (Holdings) (0001.HK) and Singapore developer CapitaLand Ltd. (CATL.SI).

On the agenda in Europe are interviews with leading property companies Land Securities (LAND.L), IVG Immobilien (IVGG.DE), Brixton (BXTN.L), Hammerson (HMSO.L), and Metrovacesa (MVC.MA), with the region's newer REIT regimes under pressure to perform as property returns slow in the UK and potential predators circle overhead.

Discussions on the state of real estate investment banking, property derivatives, and corporate sale and leasebacks with key industry figures are also scheduled.

In the United States, it is a tale of two industries, with housing in decline due to excessive supply and a meltdown in subprime mortgage lending, which has prompted an otherwise healthy commercial real estate industry to tighten up its lending practices. It has also placed a spotlight on the apartment sector, which may face increased competition from single-family houses and condominiums, whose owners are unable to sell them and instead rent them out.

Among those speaking in New York are the heads of Bank of America's consumer real estate business, Centerline Capital Group, home builders Toll Brothers (TOL.N) and Hovnanian Enterprises (HOV.N), and Jones Lang LaSalle (JLL.N).

Data last month from property services firm CB Richard Ellis (CBG.N) showed year-on-year double-digit percentage gains in office rents in at least 50 major cities across the world.

Private rival Cushman & Wakefield also said the total value of property transactions in Europe was on course for another record year above $320 billion, after bumper first quarter data.

However, a few signs of stress have surfaced as central banks around the world catch up with a U.S. rate-tightening campaign initiated 3 years ago. And the squeeze on debt-funded property investment has accelerated in recent weeks as markets have raised their expectations for global economic growth and yields on government bonds have soared.

(Additional reporting by Dominic Whiting in Hong Kong and Ilaina Jonas in New York)

(See www.reutersrealestate.com for the new global service for real estate professionals from Reuters).