First, the bad news…
“MIPIM will attempt to future-think the next 25 years of international real estate,” say the organisers of next week’s ?four-day show in Cannes. Given what’s going on in Russia and China right now, that’s quite a task.
The Ukraine crisis has cast a pall over Russia’s relations with the West. A cloud that threatens the flow of real estate capital in both directions, just for starters.
Olga Arkhangelskaya is the head of property in Moscow for EY, aka Ernst & Young. ?No doubt she will be changing the tone of her pitch to a “Russian breakfast” audience on Wednesday.
“China: is it still the investment haven it used to be?” is the title of a talk on Tuesday afternoon. More hell than haven it seems, after reading scary news from Beijing via Bloomberg. “Real estate is the root of all risks” warns Li Daokui, a former People’s Bank of China adviser.
Real estate stock prices ?are falling – perhaps because 452 Chinese property trusts are due to repay $103bn (£62bn) of debt this year, up 50% from 2013.
The Prudential Regulation Authority has asked UK banks with major exposures in mainland China and Hong Kong to examine how they would be affected by a collapse in real estate prices.
HSBC has $75bn exposure to commercial real estate, $25bn in Hong Kong and $9.2bn in the rest of Asia-Pacific. Last week’s results show the bank, whose loan book includes $8.4bn of real estate loans in the UK, has been thinking ahead. A stress test imagining a 50% fall in values in Asia has already been carried out.
David Cui, China strategist at Bank of America Merrill Lynch, warns: “The second wave of defaults may be in property trust products, following the first wave in the coal mining sector. Like the subprime crisis, it’s a problem with leverage.”
“In the US, it was the individual who borrowed too much money. In China, it’s the companies which borrowed too much money.” This statement rings a MIPIM bell. Oh yes, it was in 2007, when Alistair Hughes was then EMEA boss of JLL. He is now in charge of the Asia business.
“I did a TV interview with a US financial channel at MIPIM in March 2007,” Hughes said to me in 2009.
“I was told the first question was going to invite me to canter round the European property markets. Instead the first question was: ‘No ?doubt you’ll have noticed yesterday there was a meltdown in the sub-prime market in the US. What implication will that have for European property?’
“I had heard the word ‘sub’ and I had heard the word ‘prime’, but never in that order,” he said.
Jack-booted China is better at controlling its economy than free-booting America. So, maybe all will be well. Fingers crossed.
Second, the good news
So, let the MIPIM hoopla begin. The event encapsulates both meanings of that tangy American word: “boisterous, jovial commotion or excitement” and “extravagant publicity”.
MIPIM works in terms of the first meaning of the word as well as for the more serious business of business.
The bad thing is being forced to endure the second meaning of hoopla. Hyperbole enough to fill a flotilla of hot ?air balloons is emitted. Irritating. But it’s all part of the show. Nobody takes the extravagant claims made terribly seriously.
What of serious interest ?is there to watch for? The ?chill wind blowing in from Russia and China will become a topic of conversation. A consensus that London is getting a bit hot and the rest ?of the UK is warming up will be agreed upon.
The capital is unmistakably entering the late stage of this cycle. A fair number of new developments in so-so spots are being now touted by slightly desperate promoters, backed by sponsors of opaque origin.
Be careful. Especially if ?one of them buys you a beer ?in the Carlton Hotel costing €15 (£12).
