APREA 2013: Zell warns of Asia resources dearth

Equity Group Investments chairman Samuel Zell today warned real estate investors to be more cautious about over-allocating capital to Asian real estate in spite of seemingly attractive demographics.

Since Asia is one of the few regions that is still growing economically, it’s only natural for investors to look to it, he said, pointing to the region’s population and middle classes growth.

“There’s no question that there’s a buzz about Asia globally,” said Zell, a keynote speaker at the APREA Property Leaders Forum 2013 in Singapore earlier today.

However, Zell also said that the region’s scarcity of basic resources – such as water and energy – would become a major hindrance to the competitiveness of the real estate market in the coming years.

Per capita, Asia is often called “the world’s driest continent”, according to the International Institute for Strategic Studies (IISS). Although it has 60 percent of the world’s population, it only has 30 percent of the world’s fresh water – making the availability of fresh water per capita less than half the global average – less even than Africa, the IISS said.

Asia’s demand for energy has also been increasing rapidly – which has put a huge strain on the region’s environment and on resources like coal. Indeed, Asia is expected to consume half the world’s energy supply by 2035, but remains heavily reliant on fossil fuels, according to Asian Development Bank research.

If Asia follows its current patterns, oil consumption will double, natural gas consumption will triple, and coal consumption will rise 81 percent by 2035 – even though the region has only 9 percent of the world’s oil reserves. Hence, the ADB predicts that Asia will have to triple oil imports by then.

Zell compared Asia’s condition to that of Brazil – which is an emerging economy growing at 6 percent, but which is self-sufficient in water and energy. In a few decades, Zell expects that Brazil will be in a much better competitive position for real estate investment. In the end, Asia’s lack of natural resources will negatively impact the demand for real estate, Zell warned.

“The people may have money, but you need basic resources [like water] to maintain the middle class status,” Zell said. The question of natural resources thus has to be a large part of how much real estate investors commit to the region.

Nonetheless, Zell was not completely hopeless in his outlook on Asia. He said he was most impressed by the “entrepreneurial mindset” of Asia’s real estate professionals. They are not afraid of risk and are willing to take challenges – the kind of “animal spirits” that Zell believes the world needs in order to grow.