Surging growth in emerging markets such as China and India will boost demand for real estate, although uncertainties such as an oil shock could pose major risks, economist Nouriel Roubini said on Thursday.
“The growth of emerging markets is going to be, in the medium and long term, positive for both commercial and residential real estate,” Roubini, an economics professor at New York University, said at the MIPIM property trade fair.
“We have fast-growing economies where income and wages are growing, industrialisation and urbanisation on a massive scale in China today, and increasingly so in India and most other emerging markets,” he told reporters at a press briefing on the sidelines of the event.
This means there will be huge demand for new homes, shops and offices in these countries, although, in the short term, the ongoing turmoil in the Middle East could hurt the growth prospects in these countries if oil prices spike, he said.
Brent crude rose for a second day on Thursday to surpass $116 after forces loyal to Libyan leader Muammar Gaddafi bombed oil industry infrastructure, inflicting longer-term damage on the country’s exporting capacity.
“If oil prices were to go to USD 140 to USD 150 a barrel, this story could be different … the impact of oil prices is more significant on inflation in emerging markets, less in developed economies,” said the Turkey-born Roubini.
The growth prospects for real estate in more economically advanced economies, such as the US and Europe, are different from emerging markets as they face years of deleveraging after the excesses that led to the global financial meltdown, said Roubini, dubbed Dr. Doom for warning of the crisis before 2007.
“There’s an ongoing process of deleveraging and many banks on the U.S. have recapitalised faster than those in Europe. And I think the Europeans have been behind the curve and till have many bad assets on their balance sheets,” he said.
“Especially in commercial real estate both in the US and Europe, where a lot of the mortgages issued in the middle of the decade is coming to maturity. It is a timebomb that needs to be addressed,” Roubini said.
“In the next few years with fiscal austerity and exit from zero rates in the UK, the Eurozone and eventually the US, is there enough resilience for growth in consumption and in the corporate sector? I think that is an open question,” he added.
