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Special Report: Net Worth: Spreading the Risk With Real Estate

April 29, 2013 by Leave a Comment

But lately the trend has accelerated, in particular among Asian investors, who are taking advantage of the strength of their currencies and the environment of low interest rates to increase their investment in these physical assets.

They are not the only ones. According to the Sovereign Investment Lab at Bocconi University in Milan, sovereign wealth funds made 38 commercial property investment deals across the world last year for a total value of almost $10 billion, as they continued to seek alternatives to volatile equity markets and low-yielding bonds.

Hedge funds have also been reported as increasing their stakes in commercial, mortgage-backed securities.

A lot of wealthy individuals “are already well invested with residential properties in different countries, and they have shown some interest in diversifying further in commercial properties,” said Joseph Poon, head of ultra high net worth, South Asia, at UBS Wealth Management in Singapore. He said that he was seeing interest from Asian clients in commercial properties in London and Australia, as well as in distressed commercial properties in Europe and the United States.

Su Shan Tan, the group head of wealth management at DBS, agreed. “Traditionally, ultrahigh-net-worth individuals” — defined as those with $50 million in investable assets — “have always invested in commercial properties to some extent, be it office, retail or hospitality, often depending on which business sector they have an operating business” in, she said. “But the recent trend has been primarily driven by loose monetary policies globally, as you have very cheap money available everywhere, and by central bankers, all trying to talk down their own currencies.”

Ms. Tan noted that there had been particular interest from Asian buyers in the British commercial property market, based on the significant depreciation of the pound against many Asian currencies in recent years: The pound has fallen about 6 percent against the Singapore dollar in the past two years and 20 percent against the renminbi.

Other factors, she said, are that British common law is familiar, especially to clients in Singapore and Hong Kong, both former colonies, and many Asian clients already own residential properties in Britain and thus understand the property market there.

She said there had also been some investment flows into the property market in the United States, but mainly through mortgage-backed securities, rather than through the purchase of the physical assets, though the bank has had clients who have invested directly in New York, San Francisco and Boston.

Other wealth managers confirmed that they too were seeing an upward trend in investment in commercial property.

According to Megan Walters, the head of research for Asian Pacific markets at Jones Lang LaSalle, global direct commercial investment rose 24 percent year-on-year in 2012 to total about $440 billion, and the company is forecasting that it could reach $450 billion to $500 billion this year.

“The relatively robust end to the year demonstrates that real estate markets are well through the recovery phase of the cycle,” Ms. Walters said. “We anticipate that 2013 will record a similar performance.”

Wealthy individuals “like buying in cities they know well, which means either home locations, or cities with family links, often where family members have been to school or university,” she said. “They particularly like London, as a global city with ease of entry for foreign capital.”

London topped the list of commercial real estate by transaction volumes last year, with $56.1 billion, Ms. Walters said, citing figures compiled by her company. “About 63 percent of the buyers were from overseas,” she said.

She said major markets would continue to do well as investors remained attracted to real estate for its yields, currently higher than can be achieved in many other asset classes.

Article source: http://www.nytimes.com/2013/04/29/business/global/29iht-nwproperty29.html?partner=rss&emc=rss

Filed Under: Your Money Tagged With: , ,

Political Economy: Valid Worries About the Cost of Easy Money

February 17, 2013 by Leave a Comment

The Bundesbank, the German central bank, is not crazy. In a world where it is increasingly fashionable to call for central banks to print money, the Bundesbank is one of the last bastions of orthodoxy. Although its stance is extreme, it is a useful antidote to the theory that easy money is a cost-free cure for economic ills.

The bank is hostile to anything that smacks of monetary financing — printing money to finance governments’ deficits. It is worried that central bank independence is getting chipped away as economic weakness drags on in much of the developed world; it thinks that the European Central Bank should not respond to the recent rise in the euro by loosening monetary policy further; it is always concerned about the potential for inflation; and it thinks that spraying cheap money around can allow governments to shirk their responsibilities.

To many people, these attitudes seem old-fashioned. Surely central banks should bend the rules to get the world economy out of its current rut, they say. A few go even further and advocate “overt monetary financing”, as Lord Turner, chairman of the British Financial Services Authority, did in a seminal speech earlier this month.

Overt monetary financing involves governments’ deliberately running fiscal deficits and openly funding them by borrowing from central banks.

Mr. Turner made it clear that this was a policy that should be reserved for the most intractable deflationary recessions, the ones in which monetary policy cannot work (because businesses and households are already so clogged up with debt that they do not want to borrow more) and fiscal policy cannot do the trick either (because governments are over-indebted, too). While he advocated the medicine for Japan, he was wary about giving it to Britain, the euro zone or the United States.

The European Central Bank, it should be added, is not engaging in overt monetary financing. That is forbidden under the Maastricht Treaty, which led to the euro. But it is arguably engaging in the covert variety. This is the source of most of the friction between Mario Draghi, president of the European Central Bank, and Jens Weidmann, the Bundesbank boss — both of whom are based in Frankfurt.

The biggest clash was over Mr. Draghi’s promise last year to buy potentially unlimited amounts of government bonds from peripheral euro zone countries. Mr. Weidmann unsuccessfully opposed the plan. Mr. Draghi was right. If he had not pledged to do “whatever it takes” to save the euro, the single currency might well have collapsed.

That said, all such operations have a cost. Mr. Draghi’s drug may have taken some of the pressure off governments to make their economies more competitive.

Mr. Weidmann and Mr. Draghi clashed again this month over the Irish “bailout” by its central bank. The extremely complex transaction involved the Irish central bank’s receiving €25 billion, or about $33.5 billion, worth of extremely long-term Irish government bonds after IBRC, a nationalized bank, was liquidated. Dublin did not itself have the cash to fill the hole in IBRC’s balance sheet. It has effectively borrowed the money, equivalent to 15 percent of the Irish gross domestic product, cheaply from its central bank.

Mr. Weidmann would have preferred that euro zone governments lend Dublin the money via their bailout fund, the European Stability Mechanism. But other governments were not rushing to provide the cash and Dublin was not eager to use it either, as the interest rate would have been higher than issuing bonds to its central bank.

Although the Irish bailout was a deal between Dublin and its central bank, the European Central Bank could have blocked it. But to do so, two-thirds of its governing council would have had to vote against the operation — and Mr. Weidmann did not have enough support.

Article source: http://www.nytimes.com/2013/02/18/business/global/18iht-dixon18.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Its Forecast Dim, Fed Vows to Keep Rates Near Zero

August 10, 2011 by Leave a Comment

It is now conventional wisdom among forecasters that the economy will plod along through the end of President Obama’s first term in office. Millions of Americans will not find work. Wages will not rise substantially.

By its action, the Fed is declaring that it, too, sees little prospect of rapid growth and little risk of inflation. Its hope is that the showman’s gesture will spur investment and risk-taking by convincing markets that the cost of borrowing will not rise for at least two years.

The Fed’s statement, with its mix of grim tidings and welcome aid, contributed to wild market oscillations as investors struggled to make sense of the economy and the path ahead. The day ended in a huge upward surge on the New York Stock Exchange — the second busiest day this year after the record volume on Monday, during a deep sell-off — that could not be tallied completely until well after the markets had closed.

The Dow swung as much as 600 points in the wake of the Fed statement, at first sinking over 200 points. But after traders absorbed the decision, they quickly reversed course, and the Dow closed the day up 429 points, or 4 percent, to 11,239.77, as some investors expressed hope that the pledge to keep interest rates low could relieve some of the gloom over the economic outlook.

“The economy is in tough shape and the Fed had a difficult job of showing that they understood that without appearing to be alarmist,” said Steven Lear, who helps to manage a $150 billion fixed-income portfolio for J.P. Morgan Asset Management. “We think that they’ve played that hand about as well as they could.”

The policy announced Tuesday is an incremental step that economists described as unlikely to drive significant growth. The Fed already has held rates near zero since December 2008, and the economy is awash in cheap money. The great impediment, beyond the Fed’s easy reach, is the lack of demand from indebted consumers, nervous businesses and a shrinking public sector.

The Fed demurred, however, from taking stronger steps to aid the struggling economy, a decision that reflected deepening divisions on its policy-making committee, which generally tries to move only by unanimous consent. The vote to promise two more years of low rates passed by a margin of 7 to 3, the first time in almost 20 years that at least three members recorded votes in dissent.

The internal controversy parallels the broader debate in Washington between those pleading for the government to redouble its support for the faltering economy, and those who doubt the utility of additional aid and fear the consequences of the vast efforts already made. The three Fed members in dissent all have expressed concern that the central bank is not paying enough attention to inflation.

The Fed said in a statement that it would continue to consider additional measures to support the economy, but the split vote suggested that the Fed’s chairman, Ben S. Bernanke, may struggle to win sufficient support.

The statement, which includes an assessment of the economy, was a patchwork quilt of discouraging language. The labor market is deteriorating, construction is weak, housing depressed, recovery slow.

“Economic growth so far this year has been considerably slower than the committee had expected,” it said. “The committee now expects a somewhat slower pace of recovery over coming quarters.”

Twenty-five million Americans cannot find full-time work, a number the Fed said would decline “only gradually.”

The Fed is charged by Congress with minimizing unemployment, and increasingly vocal critics have questioned why the central bank is standing still even as the economy shows clear signs of faltering. The modest step announced Tuesday did not satisfy many of those critics.

Article source: http://www.nytimes.com/2011/08/10/business/economy/fed-to-hold-rates-exceptionally-low-through-mid-2013.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,