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Global Financial
Landscape
The New Normal and Implications for
Real Estate Finance - Taiwan
Prof James D. Shilling
Michael J. Horne Chair in Real Estate Studies
DePaul University
Lesson #1: Shortage of Capital Elsewhere in the World
Stimulus is out and deficit reduction is in.
Graph Illustrating G20 Budget Deficit as % of GDP
0
-1
Deficit as % of GDP
-2
-3
-4
-5
-6
-7
-8
-9
-10
2005
2006
Source: Economists
2007
2008
2009
2010
Lesson #2: US regions that are like Portugal, Italy, Ireland,
Greece, Spain, and now Britain
Graph Illustrating places that are struggling to repay their debt
Lesson #3: More favorable pricing is
returning to real estate markets
Graph Illustrating real estate income yields on US properties
Source: NCREIF
Lesson #4: Fortunately, Asia is ahead of Europe
and US in terms of GDP growth
Graph Illustrating estimated GDP growth for 2010
Thailand
Taiwan
South Korea
Singapore
Pakistan
Malaysia
India
Hong Kong
Australia
Spain
Netherlands
Italy
Greece
Germany
France
Belgium
Austria
Euro area
Canada
Britian
China
Japan
United States
-6
-4
-2
Source: Economists
0
2
4
6
8
10
12
Lesson #5: Time to re-evaluate portfolio allocations
Lesson #6: Problems that could impede increased
capital flows to the region
• Liquidity leads the way
• Publicly-traded REITs are needed to provide
liquidity
• Without a well-established REIT market in Asia,
how do foreign investors invest more in Asian
real estate?
• How do foreign investors go about investing in
companies they know (Merton’s argument)?
Lesson #7: Asian investors may have pushed up prices too high
relative to current income (De Bondt and Thaler argument)
Graph Illustrating REIT PE multiples, 2009-2010
Middle East/Africa
Europe
Asia/Pacific
2010
2009
Americas
Global
0
5
10
Source: NAREIT, FTSE
15
PE multiple
20
25
30
Lesson #8: A broader perspective is needed
Individuals worldwide will need increased liquidity in their retirement portfolios
Lesson #9: ECFA should lead to higher real estate valuations
Graphs illustrating relationship between current account deficits and real
appreciation of real estate
Source: Aizenman and Jinjarak (2008)
Dec-72
Mar-74
Jun-75
Sep-76
Dec-77
Mar-79
Jun-80
Sep-81
Dec-82
Mar-84
Jun-85
Sep-86
Dec-87
Mar-89
Jun-90
Sep-91
Dec-92
Mar-94
Jun-95
Sep-96
Dec-97
Mar-99
Jun-00
Sep-01
Dec-02
Mar-04
Jun-05
Sep-06
Dec-07
Mar-09
6-month anualized rolling std dev
Lesson #10: Dealing with leverage and volatility will be key
Graph illustrating US REIT stock price volatility
160
140
120
100
80
60
40
20
0
Source: FTSE NAREIT US REIT Index Monthly Return.