Between them, Brazil, Russia, India and China are home to nearly three billion people — a full 40 percent of the world’s population on 25 percent of its land mass. It’s no wonder that the group of four was christened with its own acronym, the now-familiar BRIC. The term was coined to group the countries together due to their similar positions on the development ladder. It has been estimated this latter day G4 will surpass the original G7 in economic dominance come 2027.
To say that development in the BRIC countries is on the fast track is an understatement. Sao Paulo, Rio de Janeiro, Moscow, Mumbai, New Delhi, Beijing and Shanghai are all showing the signs of emerging influence at the global level. Glitzy branded boutiques and five-star hotels are clamouring to get space in their core districts. With traditional investment locations in Europe (London, Berlin) North America (New York, San Francisco, Vancouver, Toronto) and Asia-Pacific (Hong Kong, Singapore, Sydney, Melbourne) all mature, nearly saturated markets — with hefty prices — investors are increasingly seeking alternatives.
A report by Jones Land LaSalle in April of this year suggested that over the next 20 years, more than 500 million people would be moving to BRIC cities that are currently expanding at a ridiculous pace. As economic power shifts east, financial services, manufacturing, technology and even tourism will shift with it. The exception of course is Brazil, but that leaves it the entirety of Central and South America. It’s been said that Miami is the gateway to Latin America, but that could potentially change. It doesn’t have Carnival after all — or its own waxing procedure. So what does all this mean to investors? It means it may be time to diversify geographically.
Sao Paulo breaks into the top ten on Knight Frank’s 2012 Wealth Report list of what the most important cities to investors will be in ten years’ time; Beijing and Shanghai are already there. Mumbai is in the top ten of cities growing in importance the fastest, at number 9. The investment sphere is growing.
Office and retail investment seem to be at the front of the curve, which theoretically will spur future residential development and investment. JLL states that in order to accommodate a growing work force, premium office stock in BRIC cities is projected to increase by more than 10 percent per year over the next 10 years — to 220 million square metres (2.4 billion square feet). There could be as many as 2,500 upscale shopping malls in BRICs by 2020 — or one new mall every other day. Thirty cities account for half the real estate investment volumes globally, and the top five — London, Tokyo, New York, Hong Kong and Paris — account for nearly one-quarter of that. “Shanghai, Beijing, Moscow, Sao Paulo and Rio de Janeiro have all become top 30 investment destinations since 2008, while the BRIC’s overall contribution to global real estate investment volumes has increased from less than 1 percent in 2004 to approaching 10 percent in 2011.” India’s investment real estate assets still in the construction stages alone is sitting at US$160 billion, 60 percent of that in residential property.
Of course, the down side is that all this rapid development comes at a price. None of the BRIC states are known for particularly strong environmental protection, labour equality, basic social freedoms or economic transparency, things that have kept the G7 at the top of the heap for so long. Brazil scored best among the four on Transparency International’s (frequently disputed) 2011 Corruption Index with a 3.8 out of a possible 10 (New Zealand rated best, with 9.5). Sao Paulo and Moscow rank among the most crime-plagued cities in the world, particularly for the affluent. As the JLL report conceded, “For BRIC cities to take up the mantle of ‘world winning,’ they will have to show skills in innovative and intelligent financing, put significant resilience and sustainability strategies in place and demonstrate improving transparency around legal systems, commercial codes and business practices.”
Perhaps not surprisingly, the property sector can set the tone for much of what follows. It is the one sector that demands both sustainability and environmental standards and solid business practices. Though personal security ranks high in the Wealth Report for investor criteria, educational opportunities and lifestyle are also key factors. For the property sector to be a vanguard in BRIC development, it, “Needs to design spatial footprints that can both absorb growth and meet carbon reduction commitments. It needs to look at the social impact of development as well as its location and design. Finally, it needs to work with city authorities to deliver the sustainable physical and social infrastructure that will best match the needs of residents and businesses,” according to JLL. It if works, early investors are likely to see strong returns or be able to brag about fabulous holiday homes. “Urbanisation on this scale happens only once. The legacy of today’s real estate development will last for many decades to come.”