Market indicators hint at recovery

source Emirates Business 24/7

This week I will look at signs of the upturn that is coming. There are many indicators around the world but they require, of course, a health warning before reading.

There may be a double dip, sudden global economic traumas or regional issues that will deter or at least slow recovery. And even if "recovery" happens, it will be gradual and unspectacular given the breadth of financial difficulties, especially unemployment, attached to almost all asset classes. But signs are there.

In the US, sales of "second hand" homes jumped 7.2 per cent in July to its highest figure since 2007. Naturally demand is helped by low prices (many of the sales are foreclosure-driven).

China's property industry has come into its own in the recession. It may not have been immune from the storm but its continued economic growth – slow by its standards, meteoric by those of the rest of the capitalist world – has helped international real estate. China's commercial property transactions in the first half of 2009 were $31.2 billion (Dh114.59bn) – more than the US and UK combined.

Permits to start development in Canada – one of that country's key construction industry indicators – rose for the fourth straight month in July. It is up 0.5 per cent in a month in the residential sector, and up 1.5 per cent in the commercial sector. The total for the first half of 2009 is still well down on last year but those increases are larger and more rapid to appear than analysts expected.

King Sturge's real estate economy index (a measure of property industry confidence and now perhaps the most thorough analysis of global trends) shows that confidence Germany's office sector is up for the third successive month. Retail and residential are also increasing and the majority of real estate agents report that the near-term future outlook for the property industry is positive.

In New Zealand a shortage of residential property is spurring on values with a study by economics consultancy Infometrics suggesting that Auckland, NZ's biggest city, could see 30 per cent price rises by 2013 because of supply being outpaced by demand.

No one predicts such large increases in the UK but a shortage of residential stock, along with a record low base rate and signs of government fiscal stimuli working at last, have combined to boost confidence in property.

For example the new homes builder Bovis, despite recording a loss in the first half of 2009, says it sold 901 homes in that period – up 92 per cent on the first half of 2008. The trend continued in July and August with sales so far this year at 1,076, or 93 per cent higher than this time last year.

Even in Japan – perhaps the worst hit real estate market over the long term, with prices scarcely recovered from the recession of the early 1990s – there are a few good signs. For example, the investment management firm Secured Capital has raised $535 million from international sources to invest in the Tokyo property market, along with other distressed Asian markets.

Swiss real estate, always a conundrum because of its curious and sometimes-opaque real estate ownership laws, is reported to be benefiting from those around the world seeking Geneva's "safe haven" status. Two other western European powerhouses – France and Italy – did not even suffer the scale of the residential downturn seen elsewhere on that continent, so both are seeing only minor price falls and signs of a recovery are already apparent.

India's economy is growing at a faster-than-expected rate and now the country's real estate developers in India are to get tax breaks if they complete projects by March 2010, as part of a government stimulus to push that recovery further. There will also be a public subsidy on private home loans.

So with this sort of widespread evidence, there is every reason to be optimistic in global real estate terms as we enter the final third of 2009.

If you are reading this in Dubai, I need hardly remind you that some regions of the world are still experiencing the full force of the downturn across all real estate sectors, in rental as well as sales segments. The same applies in Moscow, where commercial property is in severe crisis still as the recession has hit Russia's property market late and suddenly – and therefore recovery may be similarly delayed. Poland has seen a remarkable 90 per cent slump in commercial transactions and uncertainty over when that figure will stabilise.

Yet these markets will, too, turn as they claw their way back. Dark days may still be here and the halcyon era of 2007 – perhaps the global 'high' for real estate – may seem far away. But things are getting better.