Foreign Real Estate
Amid Low Rates, Home Prices
Rise Across the Global Village

Armed With a 'Saving Glut,'
Investors Chase Returns;
Londoners Buy in Bulgaria
Bangkok Market Is Hot -- Again
June 16, 2005;

It was a familiar story from Golden Land Property
Development PLC. With its 35-story Sky Villas
condominiums nearly sold out, it unveiled plans for an
even more lavish project. The Infinity features a
replica of Rome's Spanish Steps, a spa in a restored
historic mansion and faux-Venetian canals. About 90%
of the units in the new development sold out in less
than three months, even though some were priced at
more than $1 million.

The project isn't in a hot U.S. real-estate market
like Las Vegas or Miami. It's in Bangkok, where home
prices are soaring, bank mortgage lending is climbing
and developers are adding thousands of glitzy units.

The Infinity highlights a remarkable turnaround for a
city whose property market went belly up in 1997, and
it points to an important facet of this housing boom:
It's global and, in some places, more dramatic than in
even the most frenzied U.S. markets.

Over the past three years, measures of housing values
are up 48% in France, 63% in Spain and they've nearly
doubled in South Africa, according to data gathered
from these markets from sources including the Bank for
International Settlements, and The Wall
Street Journal. In just the past year, prices have
risen 19% in Hong Kong and 48% in Bulgaria. They've
also boomed in China, Australia and the United
Kingdom, though prices are now showing signs of
slowing in some markets like Australia and the U.K.

Americans are searching out castles in Umbria.
Londoners are gobbling up beachfront property on the
shores of Bulgaria. Europeans are finding dream homes
on the Indian Ocean near Durban. And in Bangkok, eight
years after the city's property market collapsed,
Golden Land is seeking buyers from Thailand and abroad
with a sales pitch that promises "an environment so
opulent, only in your dreams could it be imagined."

"There is a tremendous amount of money floating around
looking to invest," says Liakat S. Dhanji, the
Nairobi-born chief executive of Golden Land.

Low interest rates -- increasingly moving in sync
around the world -- are the clearest engine of this
global boom. But there are many other factors tied
into the trend, including the increasingly
unconstrained flow of capital around the world,
aggressive lending by banks here and abroad and a
frantic search by investors, large and small, for
returns that beat stocks and bonds.


Home-price appreciation for 27 countries over the past
year and three years.

Rank  Country  One-Year Change  Three-Year Change  
1  SOUTH AFRICA *  28%  95%  
2  CHINA (Shanghai)*  27%  68%  
3  SPAIN *  17%  63%  
4  AUSTRALIA *  -3%  56%  
5  NEW ZEALAND ^  16%  55%  
6  UNITED KINGDOM *  11%  50%  
7  FRANCE *  15%  48%  
7  IRELAND ^  13%  42%  
9  CANADA *  10%  31%  
10  UNITED STATES *  11%  29%  
11  THAILAND *  13%  29%  
12  SWEDEN *  10%  27%  
13  HONG KONG *  19%  27%  
14  HUNGARY(Budapest)*  5%  27%  
15  FINLAND *  6%  23%  
16  EURO AREA *  7%  22%  
17  GREECE (Ex-Athens) *  4%  22%  
18  KOREA *  -2%  20%  
19  NORWAY *  10%  17%  
20  DENMARK ^  9%  17%  
21  TAIWAN *  10%  15%  
22  NETHERLANDS *  5%  11%  
23  SWITZERLAND *  1%  8%  
24  PORTUGAL *  0%  3%  
25  GERMANY *  -3%  -5%  
25  JAPAN *  -5%  -16%  
26  BULGARIA *  48%  NA  
27  INDONESIA ^  5%  NA  

*Based on latest available statistics updated through
fourth quarter 2004 or first quarter 2005.
^Based on statistics updated between second quarter
and third quarter of 2004. Percent changes are
calculated using city or national indexes of
residential property prices, home prices, existing
home prices or prices per square foot.

Sources: Bank for International Settlements,, CEIC, and Wall Street Journal Research.

The global nature of the boom defies conventional
thinking on housing. Economists traditionally say real
estate, which can't easily be traded like a stock or
oil, is driven by local factors -- like the
availability of land in an area or regional employment

"The housing market in the United States is quite
heterogeneous, and it does not have the capacity to
move excesses easily from one area to another,"
Federal Reserve Chairman Alan Greenspan told Congress
last week. "Instead, we have a collection of only
loosely connected local markets."

International Monetary Fund research suggests
house-price gains are squeezing affordability in
places like Spain, Ireland and the U.K. So far,
though, the surging real-estate prices have been
concentrated mostly in areas that hold appeal for
global investors: large cities tied in to global
finance and attractive vacation and retirement

Most economists still believe a housing slowdown, if
it actually comes, would be absorbed by the global
economy without much disruption to overall growth
rates. Indeed, it is possible the globalization of
this boom helps to spread out the risk associated with

But if home prices were to fall broadly, it could
stress the global financial system, since banks and
investors world-wide have been gobbling up mortgages
and real estate at increasing rates. It could also
undermine the ability of individuals to spend, since
so much wealth is now tied up in homes.

While local factors do play a critical role in shaping
real-estate values -- prices have risen more in Miami
than Memphis and they've fallen in Germany and Japan
-- some economists are beginning to concede that
global factors can play just as important a role.
Researchers first recognized the global pattern in
commercial real-estate markets after the office booms
and busts that marked the 1970s and 1980s. Now they're
seeing it in residential housing, too.

In a study written last year, IMF economist Marco
Terrones found 40% of house-price movements around the
world were driven by "global factors" that translate
across borders, like interest rates and economic
growth. "Just as the upswing in house prices has been
mostly a global phenomenon," Mr. Terrones argued, "it
is likely that any downturn would also be highly
synchronized, with corresponding implications for
global economic activity."

Prices are already showing signs of slowing or even
falling in some places. In Australia, for instance,
measures of median home prices rose about 60% during
2002 and 2003, but have fallen slightly in the past
year while other measures of home prices have gone
flat. In the U.K., the Netherlands and Korea, they
also have lost some momentum. In many other parts of
the world, regulators are working hard to cool housing
fever. Real-estate brokers in China, for instance,
have seen signs of a sales slowdown since Chinese
authorities imposed a 5.5% tax on properties that are
sold within two years of purchase.

"I'm worried about a world recession when this thing
finally unravels," says Robert Shiller, a Yale
University professor and author of the book
"Irrational Exuberance."

Mr. Shiller's own university is an example of how
globalization touches a uniquely local asset like real
estate. Managers of Yale's $13 billion endowment are
increasingly looking outside the U.S. and outside of
traditional stock and bond investments to diversify
the school's portfolio.

In November, Dean Takahashi, senior director in Yale's
investment office, rang the opening bell on the stock
exchange in Bucharest. Then he told local reporters
the university would be increasing its $20 million of
investments in Romania, including some real-estate
projects. "We see enormous potential" for foreign
investment in residential real-estate projects, says
Siminel Andrei, head of NCH Advisors Inc., the
administrator of the Romanian unit of New Century
Holdings, which manages some investments for Yale
outside the U.S.

It is not just the free flow of capital that has
globalized the boom. It's also the free flow of
people. Doug Platt, a 41-year-old New York executive,
counts on outsiders to flock to Italy. He and a group
of family and business associates are negotiating for
the purchase of a 12th-century castle in Umbria for
just over $5 million. Mr. Platt and his partners plan
to carve the castle into 20 units and sell them to
Londoners looking to hop over to Italy on discount
airlines. He says he'll keep one of the units for
himself, because he and his Italian wife travel to the
region frequently.

"If you are investing in Italy right now, one thing
you will hear a lot is that the Italian economy
stinks," he says. "But it doesn't really matter to us
what is happening in the Italian economy. It's much
more important to us what is happening 1,000 miles
away in Britain."

While individuals and institutional investors spread
bets on real estate, banks are directing more credit
to home buyers. In the 12 nations that use the euro,
mortgage lending has increased at an 8% annual rate
since the end of 2000, according to Bank for
International Settlements data. That's faster than the
5% rate of increase for corporate loans. Mortgage
rate in Japan, while business lending has contracted
in both countries. In the U.K., mortgage lending was
up at a 20% rate while business lending was up at an
8% rate.

Some reports suggest banks also have become willing to
take more chances lending. An April survey of loan
officers by the European Central Bank, for instance,
found European banks eased lending standards for
housing loans during the past four quarters. Citing
increased competition from other banks, they reduced
margins on mortgages and slightly eased "loan to
value" ratio requirements. Surveys of loan officers in
places like Poland and Hungary turn up similar

"Lenders and investors have to be careful that they
exercise proper risk management. If they don't they're
going to get burned," says William Rhodes, senior vice
chairman of Citigroup. Mr. Rhodes says banks are
better managed and better capitalized today than they
were in the 1980s and 1990s, when he was helping to
navigate debt crises in developing countries. But he's
still becoming concerned about a housing bubble.

The disparity between mortgage lending and business
lending points to an undercurrent beneath the housing
boom. Roughly five years after the 1990s tech bubble
burst, business investment is still relatively modest
around the world. That contributes to what Ben
Bernanke, a Fed governor who has been nominated to
serve as chairman of the president's Council of
Economic Advisers, calls a "global saving glut" -- a
flood of financial assets looking elsewhere for a
home. The phenomenon is helping to hold down interest
rates and push up housing values.

Other factors contribute to the savings glut,
including the growing reserves of Asian central banks.
The boom in oil prices also has resulted in huge trade
surpluses among oil-producing nations, many of which
are recycling their newfound wealth back into the
world economy by purchasing bonds and sometimes real
estate. Moreover central banks have maintained
relatively loose monetary policies in the wake of the
2001 recession and the uncertain recoveries that
followed, adding liquidity to the financial system.

As a result, bond yields aren't just low in the U.S.:
They are below 5% in Germany, France, Japan, the U.K.
and Canada. That makes homes more affordable by
reducing monthly mortgage payments. It also drives
investors into real estate because the returns they
can earn on bonds are so minuscule.

Equities have been a hair-raising alternative. The Dow
Jones World Stock Index is down 1% so far this year,
up 11% in the past 12 months and down 14% over the
past five years.

"I see it on the face of people. They don't know what
to do with the money," says Gary Garrabrant, who
manages Equity International Properties Ltd., the
international portfolio of Sam Zell, the real-estate
investor who made his fortune scooping up distressed
properties in the U.S. Mr. Garrabrant has been
investing in homebuilders in Mexico and Brazil.

Bangkok Bank, Thailand's largest bank, is offering
mortgages fixed for the first three years at a 5.25%
rate, not much more than the rate on a five-year
adjustable-rate mortgage in the U.S. The result:
Mortgage lending in Thailand is up more than 20%
annually, after contracting sharply in the late 1990s.

A property boom in Thailand would have seemed
unthinkable a few years ago. Thai banks were reluctant
to lend and the number of developers dropped to fewer
than 100 from as many as 4,000 during the 1990s boom.
Between 1997 and late 2002, there were no major
condominium projects launched in Bangkok and
government officials had to press the country's
state-owned banks to extend more credit.

Now, there are some 14,000 condominiums in development
in a city whose stock of existing units is less than
100,000. The number of single-family homes under
construction shot up by nearly 80% over the past two
years. Some analysts have started to worry that units
in the city's most popular districts are being sold to
speculators, who intend to resell them quickly for a
profit. Average condo prices in Bangkok's high-end
Sukhumvit expatriate district rose 34% in 2003,
followed by an 18% gain in 2004.

Fearful of a 1990s repeat, Thailand's central bank has
introduced rules that require banks to cap loans for
large houses at 70% of the property's value and forced
lenders to register major projects with the central
bank. Regulators also began speaking publicly of a
possible housing bubble. As a result, many analysts
predict the country will avert another wrenching bust.

Golden Land Property nearly went belly up during the
last downturn. It was rescued by Mr. Dhanji, a
Canadian citizen who worked as a real-estate
consultant in Hong Kong. Tapping into foreign
investors like Morgan Stanley and financier George
Soros, he says he raised $100 million and
recapitalized the company.

Today, Golden Land has about 2,500 homes in the works
or recently completed in Bangkok suburbs and more than
600 residential units planned or recently completed in
the central business district. Its crown jewel is the
downtown Infinity project. Condominiums will include
Jacuzzi tubs with 270-degree views of the city. The
company says it has raised prices 12 times since
launching the project in mid-March due to high demand.
Some 30% of the units are going to foreigners, many of
whom see Thailand's luxury developments as a better
value than pricy units in places like Shanghai, London
or New York.

"There may be a [housing] bubble in the U.S. or
Britain," says Gilbert N. Wong, an American executive
whose company manufactures household appliances in
Asia, but "there's no bubble here." He believes
Bangkok is cheap relative to Tokyo or Hong Kong and he
thinks incomes are rising so demand will grow. Mr.
Wong is spending more than $2 million for two Golden
Land units; one is for himself and the other he might
use for his children.

Rising rates or a change in sentiment by global
real-estate buyers are two main threats to the housing
boom. In Bangkok, there aren't signs of serious
problem for now. "I think the U.S. is at the top of
the cycle," says Mr. Dhanji. But he says Asian real
estate, which only began recovering in the past few
years, "is just beginning."