Knight Frank, the leading independent global property consultancy, says the global real estate market is going through one of its toughest phases. According to Nick Thomlinson, the general picture remains sluggish across the board, but the key market in slowdown mode at the moment is the US. He fells it is not just the residential housing market in the US where the funding has dried up but also the commercial segment. In this interview he talks about the slump in the US housing market and potential of growth in Indian realty sector.
NDTV: Do you see a cooling off in the real estate prices in different markets?
Nick Thomlinson: No doubt the real estate prices are cooling off more faster in some areas. The prices are cooling off in Europe and it is gradually spreading across India and Asia Pacific.
NDTV: Is it a bubble that is bursting or is it a correction, which needed to happen?
Nick Thomlinson: I would call it froth and a lot of froth has come off, which is again not a bad thing, particularly when the market is overheated. In near future we would expect a sustained and steady growth rather than boom and bust.
NDTV: What do you think of the subprime crisis in the US, as we have seen a lot of housing statistics coming out on regular basis talking about the condition of real estate market there. Where do you see it going from here?
Nick Thomlinson: Well, I think the US has still got some way to go in large parts because the banks are affected more than anyone else. I think it will take a while to build up. The slowdown in demand the US housing market will have a knock-down effect, although there was initial oversupply but there will be gradual take up of all the vacant buildings. It is not just the residential housing market that has been affected but also the commercial side because the funding has dried up. Until the confidence is restored I don’t think we are going to see the resumption of normality in the US for some time.
NDTV: What is the condition of mortgage market in the US?
Nick Thomlinson: Not good, although I am not an expert in that respect. Till the banks have rebuild their balance sheets it is not going to be a ‘mortgage famine’ but it is going to be a mortgage restriction.
NDTV: Do you see a lot of real estate developers shutting shop in the US?
Nick Thomlinson: I think some of the real estate players are finding it harder and there must be some consolidation in the public companies. At the moment, I am quite sure that a lot of smaller real estate developers are struggling.
NDTV: How much do you think on average the real estate prices in the US are coming off in residential and commercial sectors?
Nick Thomlinson: I think you have to be careful about generalizing because there is hardly any decline in property prices in some areas while other are seeing a decline of 30 per cent. In an average term we are seeing a decline of 25 per cent to 30 per cent.
NDTV: What is the situation in UK and Europe regarding property prices?
Nick Thomlinson: On an average the prices are down by 4 per cent in the last quarter, which is not that large, if you look at the surge in the previous years. The European market is difficult to group into a single market but the UK market is probably been more affected than the rest of Europe. The property prices in Spain are down by 20 per cent.
NDTV: The average rate of return of investment made in real estate market in the US, UK and Europe has come down. What is your opinion on that?
Nick Thomlinson: It is now down to single figure and I think it is only in the UK market where the growth was negative in the last quarter. The downslide is a challenge and I think you can fight it only with confidence.
NDTV: Do you think it could worsen further?
Nick Thomlinson: In some market yes but in other markets I think probably we’re in for soft landing where the prices would probably bump along and there’s nothing wrong with that.
NDTV: There’s a lot of Indian investment that’s pouring into the UK and Middle Eastern market. Your say on that?
Nick Thomlinson: London is still Europe's top-ranked place to locate a business. London has always been a favourite for the NRI community. For example, One Hyde Park is the most expensive building in the world with flats going at $10,000 or 4 lakhs per square feet. Most of the buyers are from outside UK with 39 per cent coming from Russia and 25 per cent from the Middle East and a few Indians.
NDTV: In terms of Russian money coming into the UK real estate market, is it a myth or reality that a lot of ‘hot money’ is pouring in?
Nick Thomlinson: I don’t think it is hot money in the sense that we all know where it has come from. I think the investment is in excess of billion pounds.
NDTV: What kind of NRI influence have you seen in terms of investment in London realty market?
Nick Thomlinson: It has been huge in terms of amount of money and also in terms of numbers. The investment will continue as people see London as a safe haven both in terms of economy and society.
NDTV: Have you been encouraging investment into Indian realty market by NRIs.
Nick Thomlinson: Many people see India as an attractive place not only to invest from business point of view but also to live. We’re raising close to $300 million fund, which will be invested in company’s developments in India.
NDTV: What sort of figures are you looking at returns on investment in realty market?
Nick Thomlinson: In India we are expecting returns of 15 per cent to 18 per cent. I also think prices are cooling off in India, which makes buying opportunities for funds and we’re quite relaxed about it.
NDTV: Amongst the emerging markets, which market do you see more promising in realty market in the next five years?
Nick Thomlinson: Brazil and Africa are very interesting markets which holds huge potential in the next few years.
NDTV: What is the size of Knight Frank worldwide and also in India?
Nick Thomlinson: We started operations in India 12 years ago with just 12 people but now we have over 800 people across the country. Our global network encompasses more than 165 offices in 36 countries across six continents. Over 6,000 professionals handle some $36.1 billion worth of commercial, agricultural and residential real estate annually.
NDTV: What are the key obstacles you see in terms of development of realty market in India?
Nick Thomlinson: I think the big question is what is the government going to do about opening out to overseas investors, which ultimately will be a constraint. I also think there is need for more transparency in deals.