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The U.S. financial crisis caused by subprime mortgages has very quickly become an international, or rather, worldwide phenomenon. This crisis, which had been predicted and is similar in some ways to the Internet bubble bursting in 2000 and 2001, has exploded in a very big way, dragging with it a large share of the western world’s economic-financial system of banks and the strongest mutual funds.
The aftershocks of this disaster were still being felt, when the violent onset of soaring increases in raw materials, among these fuel costs, created more tension. The huge losses suffered as a result of the subprime crisis triggered widespread speculative efforts to make up for the losses through futures contracts. This in turn led to skyrocketing purchase prices, which were already high as a result of growing demand by emerging countries, first among these China and India.
The slowdown in the real estate market, rising costs of raw materials and a weak dollar are all interconnected and are already pointing to another major risk, inflation, according to a recent statement by the Governor of the U.S. Federal Reserve, Bernanke. For this reason, observers have interpreted this warning as heralding a change in economic policy which should lead to a stronger US$ towards the end of 2008, in an attempt to put a halt to rising fuel costs.
Every cloud has a silver lining however. Although times are tough for the property market in more developed countries, other countries are less impacted by this financial turbulence because of the very fact that they are not as structured on rigidly interconnected models, which are the primary cause of the so-called domino effect.
The most interesting areas from this point of view are currently Latin America, Russia and the United Arab Emirates. Brazil is a very good example: over the past two years the property market has grown by about 15% a year, both for residential and office buildings, with the Real rising 10% in value against the US$ as a result of an economy that is largely unaffected by rising fuel costs, since it has focused heavily on bio-fuels. The demand for tourist real estate is very high throughout north-east Brazil, with interest rates on mortgages that remain high (at about 15%) but expected to fall to 8% over the next two years. Mexico is also another very attractive market for investments in the tourist-property sector with Riviera Maja and Baja California. Likewise, the doubling of the Panama Canal that was decided in October 2006 has led to a steep increase in the demand for renting and buying property, generating an overall increase in prices.
A veritable construction boom is underway in large Russian cities with a population of more than one million inhabitants and this trend is expected to extend to smaller cities over the next few years. As a result of economic stability and a sharply rising GDP, building activity in Russia is particularly strong and supported by financial and tax incentives which international investors find particularly appealing.
The United Arab Emirates are following these trends but to a lesser extent due to a lack of transparency in the country.
Along with these areas of compensation which offer opportunities in the real estate market, more attention is being focused on the need to limit energy costs. Probably the only positive thing about rising fuel costs is a greater awareness of the need for a two-track approach as far as energy is concerned: the search for new non-polluting and renewable sources of energy so as not to fall into the same trap again, and energy savings.
This situation is giving an extraordinary impulse to technological research and the upgrading of residential property.
Increasingly higher requirements are being set by international organizations for thermal insulation and homes are having to comply with immediate and effective solutions in order to prevent the value of the property from falling. Without going to extremes, such as the “passivhaus” which was built 20 years ago in Austria, all new construction and renovation work is required to use leading-edge construction methods to obtain the lowest heat dispersion. Since approximately 40% of the heat is presently lost through door and window frames, it is easy to understand why research into the development of IG systems is very important. This need does not apply to countries with colder climates alone: in hotter countries the problem is the opposite but of the same nature because better insulation can be very important in reducing high energy costs due to the use of air conditioning units. The story doesn’t end here. Research and recent experience has now widely demonstrated that the most profitable sources of renewable energy are the wind and sun. While the use of wind and photovoltaic energy on a vast scale is only the matter of political will, solar energy is about to start following a direction that could become truly revolutionary: for example, the German Aerospace Research Center has calculated that a mirror system on less than 0.3% of the deserts in the Middle East and Northern Africa could cover the energy needs of the producer countries and the whole of Europe.
U.S. economist Jeremy Rifkin has recently suggested that all these technologically advanced systems could be exploited on a small scale because every new building, whether small or large, can become a mini electric power plant. Using the Internet model, which produces and shares information, energy that is produced independently is used individually and the surplus placed at the disposal of new utilities that have developed a bidirectional technological infrastructure in the meantime, so that energy reaches homes but is also generated by homes.
This is what the immediate future holds in store. With such a wide-ranging scenario lying in front of us, talking about the real estate crisis market could almost bring a smile to people’s faces: what we actually have here is a huge opportunity, a new technology race has just began.
