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APRIL 16, 2007
Hot Properties, Half A World Away U.S. property is cooling, but foreign real estate funds and stocks are booming The runup in real estate stocks has stalled in the U.S. under the weight of subprime lending woes and a fully priced commercial sector. But overseas, these stocks are kicking into high gear. Indeed, the number of non-U.S. real estate stocks grew from 170 to 314 from 2002 through 2006 in response to strong economic growth, especially in Asia. This international boom also springs from regulatory and market changes. In recent years, 20 countries have adopted the real estate investment trust (REIT) structure familiar in the U.S., allowing real estate companies that go public to avoid taxes as long as they pay out most of their earnings as dividends. In addition, more developers are going public. By accessing the capital markets, these companies can do more building, acquire choice properties, and ramp up earnings growth. Clark Winter, global chief strategist of Citigroup (C ) Global Wealth Management, thinks the outlook for global real estate makes it the best among 32 domestic and international asset classes (BW—Mar. 26) "What's happening around the world is like the U.S. REIT market in the early 1990s, heading into a period of rapid growth," he says. BRAZILIAN BETS Winter says low, stable interest rates in Asia and Latin America have led developers to build in places they've avoided in the past. The stability has also made mortgages more available and less costly. The simplest way to play the global real estate boom is through specialty mutual funds. The Alpine International Real Estate Equity Fund is by far the oldest, with a 10.3% annualized total return since its 1989 inception and a 28.9% return over the past five years, through Mar. 31. High on Alpine manager Sam Lieber's list of favorites is Brazil, which is experiencing a residential development boom. "Eighteen months ago there were only three publicly traded Brazilian real estate companies," he says. "Now there are 16 and more on the way." One of his holdings is homebuilder Rodobens Negócios Imobiliários. "It builds in small towns where land is cheaper than in the cities," he says. Other managers think Asia is the place to be. Some 43% of the assets in the Cohen & Steers International Realty Fund are there, and its newly launched companion, Cohen & Steers Asia Pacific Realty Shares, is devoted solely to the continent. Cohen & Steers Global Chief Investment Officer Joseph Harvey thinks Japanese real estate has the potential for a major recovery after 15 years of declines and that China continues to be a growth dynamo. Mutual funds aren't the only option. The new SPDR DJ Wilshire International Real Estate exchange-traded fund carries a low 0.60% expense ratio, less than any competitor's. And a couple of closed-end funds focus on this area. The choices may be limited compared to the multitude of U.S. REITs. But given the robust real estate markets overseas, more ways to play will be coming soon.  By Lewis Braham Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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