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Market to reach bottom in 2010, says Trump
04 Aug 2009
India and China to recover more quickly, but only US will lead sustainable global recovery
The very foundations of the real estate world have been rocked and continue to be buffeted by economic turbulence.
It is against this backdrop that Cityscape Dubai, the world’s largest real estate investment show and conference, brings together some of the most powerful investors, developers and economists on the planet from 4-8 October.
In an interview, Donald Trump Jnr., Vice President of the Trump Organisation, and keynote speaker at the conference, examines the origins of the real estate crash and how he sees the future.
Why do you think that many of the world’s emerging markets were caught out one after the other by the real estate crash?
Trump: The first emerging markets to feel the impact of the economic crisis were those with small populations, trade deficits, significant foreign investment and large borrowing of foreign debt. As the crisis took hold the tightened credit markets managed to then slow even the best positioned emerging economies.
Why do you think emerging markets - even though less exposed to the sub-prime market - fell as heavily as some of the more mature markets?
Trump: The sub-prime problem was merely the spark that lit the larger crisis which was embodied by the tightening of credit markets worldwide and in emerging markets: the retreat of foreign capital to more familiar, safe assets. No countries – regardless of their involvement with the sub prime market – could avoid the impact of restricted lending.
Much has been made of green shoots. When do you feel that real estate prices will bottom out?
Trump: Due to the persistent buy-sell gap, the unwillingness of banks to foreclose and the complexity of workouts - I would say that it will be sometime in 2010 before we get the sense that we have bottomed out.
Many commentators believe the US led the world into this recession. Do you believe it will ultimately lead the world out of recession?
Trump: Although some markets may recover sooner (China is still forecasted to grow this year by a rate of 5.6% according to Business Monitor International) and others may lag (Eastern Europe comes to mind). A consensus will be reached on the state of the world economy and its recovery once the US is out of the red.
Once the real estate markets have bottomed out, what type of recovery do you forecast – V shape, U shape, L shape or indeed square root?
Trump: I don’t think there’s any “shape” that would adequately illustrate the current state of the market or a likely model for recovery. I anticipate recovery to be a slow and long but accelerating process as governments fine tune their recovery programmes, the industry gains workout experience and precedents are set for property values and terms and conditions for distressed divestitures.
Do you feel that emerging markets will decouple in terms of recovery? In other words recover quicker?
Trump: I do see emerging countries recovering more quickly because fundamental demand in so many of these countries is still very strong. According to Colliers International, Mumbai has seen the average rental and capital values for luxury apartments decline in the range of only 4 – 12% year over year. This is a show of resilience, and the entry level to middle income housing market in India is even stronger.
The Beijing Municipal Commission of Commerce expects total retail sales in Beijing to grow by 13% year over year by the end of 2009 – a remarkable performance for a sector that has been comparatively decimated in the US.
How long do you think it will take for property values to return to their peaks in late 2007 early 2008?
Trump: An analyst for Deutsche Bank recently predicted that the US real estate market would not recover until 2017. This may be accurate for commercial office properties, but other sectors will recover more quickly. Hotel income will rebound with the economy though cap rates will stay more conservative for a while – hospitality values could return to 07/08 levels by 2015.
With low liquidity, historic debt levels, growing unemployment and higher taxes looming in the west, how can real estate prices recover?
Trump: There is more pain to come and real estate will not recover without liquidity and job growth. But both will recover in time and with them real estate prices.
Do you see real estate as an investment class losing its appeal once we are in to recovery?
Trump: Real estate investment will never lose its appeal. Real estate is a solid, long-term hold in a portfolio; it is a secure investment provided the right people are involved. In addition, should increased government spending trigger an inflationary environment, investors will be looking for shelter in hard assets.
What recession busting innovative strategies is the Trump Organization examining at the moment?
Trump: The Trump Organization is very creative at finding ways to add value to assets. The organisation has a broad set of capabilities to utilise including: managing and positioning a world-class luxury brand, expertise in project development and construction and the ability to market and sell real estate at huge premiums and in high volumes.
The assets that interest the organisation include hotel, residential, mixed use and golf asset classes in both international and domestic locations. In this environment we have explored acquiring or taking a position in key assets from distressed parties, partnering with banks to complete or reposition foreclosed assets, acquiring divested assets from bank reorganizations and partnering with local developers on intriguing new developments.
Source: Cityscape Intelligence