Credit crunch global market feels the heat

By The Nation
Published on October 21, 2008

Lack of liquidity is threatening the realestate sector and the broader economy.

Amid a deepening interna¬tional credit crisis and a rap¬idly decelerating global econ¬omy, global realestate markets are feeling the realtime effects of a tightly interlinked world that remains increasingly vulnerable, a research by the international realestate specialist, Jones Lang LaSalle, showed.

The markets have shifted from a virtuous cycle to a vicious cycle. The dramatically changed environment began with the American subprime mortgage meltdown 18 months ago and then spread rapidly throughout the global financial system and has now touched all aspects of the glob¬al economy.

Initially, the global credit crunch affected realestate lending, trans¬action volume and valuations. However, the lack of liquidity is now threatening the broader economy in a serious way by limiting critical financing that many corporations and even local and state govern¬ments rely on to fund daytoday operations. The slowing underlying demand, shock to business confi¬dence and liquidity crisis have clear¬ly affected realestate market funda¬mentals.

Occupancy declines and vacancy increases have been broad - though not yet significant in scope - and rental rates are under mounting pres¬sure on many markets and property types across the world.

Forecasters are still projecting global economic growth of 2.8 per cent for this year, thanks to the eco¬nomic momentum in Brazil, Russia, India and China - known collective¬ly as the BRIC countries - as well as in the oildriven economies of the Middle East and parts of Eastern Europe. These downward moves are offset by growth in the BRICs, par¬ticularly in China, where domestic demand remains healthy and finan¬cial systems have been less impacted by the credit crunch.

Additionally, falling commodity and fuel prices will ease problematic price pressures that have been threat¬ening growth globally and limiting much needed monetary policy action in some emerging markets.

The deleveraging predicted a year ago is happening primarily among the financial institutions facing increasing difficulty funding their operations, let alone making loans to borrowers. The primary issue remains the uncertainty surrounding the bad debts tainting these institu¬tions' balance sheets and their inabil¬ity to sell them or raise capital. Troubled debt assets could exceed a staggering US$1.4 trillion (Bt48 tril¬lion) in the United States alone.

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Credit crunch global market feels the heat

Lack of liquidity is threatening the realestate sector and the broader economy.

OTHER BUSINESS

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