Risks stalk property markets

Last updated 10:21 22/01/2014

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All property markets face hazards but investors need to take risks anyway, an international property conference has been told in Christchurch.

Giving a keynote address to the Pacific Rim Real Estate Society's annual conference at Lincoln University, American property professor John Baen outlined the value of property investment .

"Real estate is valuable long term. The true basis of wealth is property, and always has been" he said.

Baen told the conference that risks to property markets could include natural events such as earthquakes and typhoons. They could also be created by human activity such as terrorism, financial downturns, changing tourism patterns, competing property developments and changes in industry.

He gave examples of a new suburban mall luring away shoppers from a town centre, and robotics slashing labour requirements in an industrial city.

"Catastrophic occurrences happen, we can't control them. You can get paralysis by analysis.

"Somebody has just got to take some risk - in real life there are no guarantees."

Baen, a professor of real estate at West Texas University and an author and expert witness, spoke on the recovery of property markets after catastrophic interruptions.

Delegates for the conference have come from Australasia, Asia, Europe and the United States.

Baen said loss of value in property markets could be gradual or sudden. While in some cases rebuilding could offset the loss of a city, in other cases cities need to be abandoned, he said. This could be the case where something such as on-going flooding or nuclear contamination made rebuilding unwise, or where the loss of industry made a city no longer viable.

Owners often rebuilt in a risky location as they had insurance, but insurers were balking at high risk and hiking premiums or declining cover, he said.

After an event the best use for a site may change, values may slump, tenants may be hard to attract and capital investment hard to attract.

"Just because something happens, doesn't mean you put it back like it was before."

Unwise economic decisions could be taken and markets were "wrong all the time", he said.

Baen also pointed to technological change as a big influence on property, with patterns of employment, shopping and leisure all changing where people work and live.

Migration was identified as a very big influence on property markets today, especially with wealthy and educated Chinese wanting to live in and invest in other countries, and residents of under-developed nations looking for a better life.

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Moving populations meant winners and losers, he said. Where populations rose fast, "there will be fortunes made in the property markets".

- The Press

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