Emerging markets have been playing a bigger role in investors' portfolios for several years now. Not only are the stocks and bonds of most companies domiciled in emerging markets highly sought after, but real estate is a hot commodity in Asia and East Europe. Let's focus on China, since the media and investors give it the most attention out of the emerging market scene.
In March, the National People's Congress approved a major piece of legislation that enforces private property rights. Though the law has many shortcomings, it will definitely mean land value will rise in the coming years. Good news for investors who act timely. Also, the Chinese government is tightening its industrial land policy in order to pursue a more "sustainable" path of economic growth. China's state-controlled press reported that some of the reform measures' goals is to restrict the appropriation of farmland for development purposes, prevent economic overheating, and establish a system of minimum prices for industrial land use rights.
Writing for Real Estate Forum in September, Andrew Ness reported that these policies are "serving to establish a more transparent framework for industrial land sales, which allows international investors to compete on more equal terms with local players. This, in turn, is giving developers, large-scale manufacturers and third-party logistics companies more confidence in acquiring land." Land values have increased also. In Beijing industrial land has increased by 22%, while rates in Shanghai grew by 24%, between the first quarters of 2006 and 2007, he added. Second- and third-tier cities will feel the impact of this land reform law as industrial bases look to relocate to the cheaper fringes of urban areas.
"Over the longer term, the adoption of the new measures will act to significantly increase the total costs of industrial real estate in China," wrote Mr. Ness, who is the Hong Kong-based executive director of CB Richard Ellis Research Asia.
As far as March's private property rights enforcement law is concerned, The Economist pointed out there is plenty of shortcomings in the law: It does not give peasants marketable ownership rights to the land they farm; it does not let peasants use their land as security on which they could borrow and invest to boost productivity; and it does not clear up who owns what. However, The Economist notes, "a revolution (is) waiting to happen (in China)—or perhaps two. One is the bourgeois revolution led by the emerging property-owning middle class that the new law will help. The other is the potential for the simmering resentment in the countryside to boil over, perhaps in frustration at the law's shortcomings. Property rights are at the root of both—which is why the dozing NPC delegates may have started a process this month (March) that will one day change their country completely."
These are some of the issues that are discussed at IncreMental Advantage's real estate conferences. For more information, please visit www.incrementaladvantage.com.
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