Colin Dyer: Expanding in Africa and Avoiding Real Estate Bubbles

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Colin DyerApologies for missing yesterday’s blog posting. With the dawn-to-dusk (actually dawn-to-midnight) schedule here, I admire our colleagues who were able to post while also meeting with current and prospective clients, and occasionally, attending conference sessions to further our understanding of progress in the world.

To compensate, a longer than usual blog tonight, written at midnight, having just returned from a long formal dinner with JLL’s lead bankers. The Bank of Montreal leads a consortium of 19 major banks that have committed to lend us up to US$1.2-billion. They all do this with great confidence, reassured by our investment grade balance sheet. So BoM is an important partner of the firm.

Two interesting, but unrelated, topics for this post: Africa and real estate bubbles.

First, Africa.

Our corporate clients, who account for 50% of our revenue today, have been asking us for some time to develop our footprint in Africa. We’ve struggled with this, trying to work out safe, ethical and profitable ways to develop beyond our offices in South Africa, Morocco and Cairo, and in neighboring Dubai.

So one of my goals in Davos is to understand how others are handling their growth into what, for many companies, is not just a new market, but a new continent. Talking with accountants, lawyers and consultants here, I’ve learned of several approaches. These include “fly-in-fly out”, which is to say, establish no permanent presence in Africa, but fly people in from Europe, the Middle East or Asia to do specific jobs for specific clients.

A second approach, which is consulting-led, involves advising specific clients on development projects, on setting up offices or finding space for them.

And a third approach, which KPMG calls ‘Clusters,’ is to affiliate countries with their former European imperial occupiers, so Angola with Portugal, Algeria with France and so on.

We’ve reached no conclusions, but now have useful input to add to the discussion with Christian Ulbrich, Vincent Lottefier, and Mark Bradford, who are moving forward with our growth there. Interestingly, there are clearly many more delegates from Africa than in previous years.

Second, real estate bubbles.

We at JLL asked for a discussion on this subject, and today I chaired a panel which discussed just that.

Why? Because real estate is the world’s largest asset category and carries the greatest proportion of the world’s bank debt. So when it goes wrong, it becomes an issue for the entire financial system.

The panelists included Bob Shiller, the Nobel-winning economist who predicted the last real estate crash, Jaime Carauna, Chairman of the Bank for International Settlements (BIS) and former Governor of the Bank of Spain, and Klaas Knot, Head of the Dutch Central Bank. An interesting group!

It was a great dialog, and we will capture and develop the content to use with our clients.

Some headlines:

  • Simply put, bubbles are easy to spot, but hard to admit to.
  • The tests and tracking mechanisms employed by central banks gave them a very clear picture that, in 2004 – 2006, we were in a global real estate bubble, both commercial and residential. The banks warned but lost credibility when nothing happened for several years. They were seen to have ‘cried wolf’ too often.
  • Those same banks now have the tools to detect, and also to dampen, asset bubbles, and one hopes they will do just that before future stresses become severe.
  • We are not in a global property bubble today. BUT the current cycle has several more years to run. That gives bubbles plenty of time to develop – especially if credit remains easy, and lending standards continue to slip – and for a frenzy to build among commercial and residential buyers.

There was much more, but just these headlines will help next time China TV asks me if there is a residential bubble in Shanghai.

Enough for tonight, I’ll send a wrap up on Sunday.