Dr. David Lynn, author of Emerging Market Real Estate Investment: Investing in China, India, and Brazil, shares his insights with IBTimes regarding why this class of asset is an attractive investment.
The first reason is the all-too-well-known story of the superior economic outlook for emerging market economies versus developed economies.
These countries have the demographics and societal megatrends that will support strong economic growth for decades to come. Furthermore, their public balance sheets are actually better compared to developed countries like Japan, the U.S., and certain European countries.
Many investors already recognized this fact and therefore have exposure to emerging economies through stocks and bonds. Recently, institutional players have also made emerging market commercial real estate one of their primary asset classes, which is not a bad idea, said Lynn.
First, the growing affluence of the emerging markets middle class means they will look to buy bigger and nicer things.
One of their purchases will be better residences. In the context of commercial real estate, investors can invest in large residential complexes/buildings. Despite all the talk about the housing market overheating in countries like China, Lynn countered that demand for housing is strong and based on fundamental economic realities.
These people also want to shop more. They certainly can afford it, given the health of the private sector balance sheet in emerging market economies. Therefore, there will also be a boom in the construction of retail stores and malls.
Lastly, the growing wealth of the middle class should give a healthy boost to the hospitality and tourism industries, which means the construction of more hotels and resorts.
A trend related to the rising affluence of the middle class is urbanization, which creates demand for all sorts of infrastructure buildings. Brazil is the most urbanized country out of the three, followed by China and lastly India, said Lynn.
Lynn also thinks there will be growth opportunities in office buildings.
China is becoming a major player in manufacturing industries, India in services, and Brazil in manufacturing and natural resources, he said.
As a result, multinational companies are beginning to move corporate functions to these countries instead of merely using them as low-end output centers. This trend will prompt the construction of more office buildings.
To get exposure to all of these commercial real estate opportunities, Lynn said investors can do so through private equity real estate or public securities like real estate investment trusts (REITs) and publicly-held real estate companies.
Email Hao Li at firstname.lastname@example.org