Asian property: The dissidents' view

It's a mixed bag at best, but Asia is generally not living up to the inflated expectations that many Americans had going into the market only a few short years ago. This is according to participants at a conference last month in New York sponsored by Asia Society and Columbia University.

"Asians want control, and loss of control is loss of face," said John Tsui, conference chairman. That perhaps best summarizes the slower-than-expected recovery of the region's property markets.

Michael Buckley, director of Columbia University's real estate development program, identified several major trends in the region, including continued business consolidations, demographic shifts, urban sprawl, e-commerce, fusion between media and entertainment, and rising expectations of a performance economy.

The key, according to most participants, is the move toward true "market-clearing price levels." But apparently that is a harsh reality most Asians are not willing to accept, at least at this point in time.

Much attention focused on the Japanese market, where the RCC, the local equivalent to the U.S. Resolution Trust Corp. (RTC) in the 1980s, is now in the midst of working through the real estate crisis. But reviews on the RCC's commitment are mixed at best. In fact, the entity seems to be taking more of a "buy and hold" tack as opposed to the RTC's mandate, which was plainly and bluntly to sell assets at any price if possible and let the markets take care of the mess.

"Follow the politics," said T. Timothy Ryan, managing director at J.P. Morgan in New York. "It [the Japanese experience] is not what we expected. It's very difficult to reproduce the RTC experience in other markets. And it's very difficult to find the opportunities in Japan. I can say that after more than two years of looking. The level of [deal] flow has been disappointing. The role of government is to take the hit and create opportunities for people like us to allow capital to flow globally to address the issue from a real estate standpoint. The underlying problem for much of Japan is real estate values."

Tom Horton, principal in E&Y Kenneth Leventhal's Washington, D.C., office, and a man who spends most of his time in Asia, said this: "Perhaps the RTC model is the way to go" in Japan, but the country doesn't seem ready to commit to that course. "They've come up with their own methodologies, based on their culture and cradle-to-grave employment. They won't rely on 'the invisible hand of capitalism' to correct the situation. It's a real conundrum, but ultimately the government has to step up to the plate and write the check."

One of the region's bright spots, according to Horton, is Korea. "Korea is way ahead of all other economies in the region. The real estate sector is lagging behind, but it is a land-scarce country where real estate is a highly valued asset."

There was a somewhat bullish perspective as well. John So, head of Asian real estate at Jardine Fleming Securities Ltd. in Hong Kong, offered a bright outlook for the Hong Kong and Singapore markets, but added "there is still plenty of bad news out there."

Bill Walton, managing principal of Westbrook Partners LLC in New York, which organizes opportunity funds that are active in the region, is more bullish. "Japan is going to come back," he says. That's our bet." In fact, he just opened a Singapore office to source more deals in the region.

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