Politics, regulation vex property chiefs

LONDON (Reuters) - Europe and U.S. property investors have cast their nets far and wide to dodge weak values and low returns on their home soil for the more risky potential of emerging Asia, Latin America and former Soviet states.

The dangers of such countries include fickle laws, political instability, and corruption, property executives at the Reuters Global Real Estate Summit said this week, as they come to terms with stricter rules in the U.S. and Western Europe.

Glenn Aaronson, CEO of the Morgan Stanley backed developer Multi, said political risks had upset his ambitions of venturing into some of Europe's youngest economies. Multi has successfully built malls in more stable Turkey.

"We no longer have ambitions in other areas in the newest parts of Europe where, once upon a time, we may have had a view that markets like Romania, Bulgaria and Georgia would be like Turkey for us," Aaronson told a summit session in London.

At worst, fickle laws could see a company's legitimate investments stripped away, a grim reality already faced by some in Zimbabwe and Russia recently.

"Things I would always look for are expropriation risks ... if you are buying an asset seen as fundamental to security and infrastructure, the risk is you'll find it's not your asset one day," said Simon Davies, managing director at Blackstone.

Even China, a darling of multi-national firms due to its rising economic prominence, gives some real estate executives pause for thought as property laws remain opaque and can be subject to abuses such as home confiscations.

"The economic situation in China is strong, but we would not invest in China with our funds because we feel the legal situation, getting money out of China, things like that, is difficult," said Matthias Danne, management board member for real estate at Germany's Dekabank.

"Within the next three to five years that will change definitely, but we won't do anything within the next two years for our funds," said Danne, whose open-ended funds manage about 21 billion euros of global properties for German savers.

LOCAL PARTNERS

Property chiefs say difficulties in riskier cities highlight the importance of securing credible homegrown partners to help them navigate tortuous local rules, be it in the galli of Mumbai, favelas in Rio de Janeiro, or a hutong in Chongqing.

"In real estate what matters isn't federal governments, the local, state governments are the ones who give you the contracts and building permissions ... the guys in Chennai, Mumbai, versus the guys in Delhi is a completely different game," said Dennis Lopez, chief investment officer at AXA Real Estate.

"But when you look at it from an Indian perspective, they know how to make things work ... they grew up there, they've got connections, and they can pick up the phone and things will get done," said Lopez, an American who previously ran Indian family owned investor Sun Real Estate.

HSBC Private Bank, looking to snap up commercial properties in Brazil for wealthy clients, ranks the Latin American powerhouse ahead of debt-stricken continental Europe, also believes local partnership is crucial.

"Our procedure for approving a new partner is a very laborious process and rightly so ... we also look for partners to co-invest so there's a strong alignment of interest, whatever happens," said Paul Forshaw, head of real estate fund management at the private bank at HSBC.

HOME RULES

Closer to home, real estate executives are having to deal with tightening regulations and measures they view as hostile to business, which are being pushed through by the bureaucrats of Washington DC, London, Berlin, Paris, and elsewhere.

"I'm concerned about everything they talk about in Washington because most politicians don't know how business operates," said Richard LeFrak, chairman & CEO of real estate developer the LeFrak Organization.

"I'm very concerned that especially New York is going to suffer from too much financial regulation ... the financial services industry pays the bill in this town," LeFrak told a summit session in New York City.

Across Europe, property executives view with concern EU proposals for stricter banking rules and control over alternative investments, such as real estate.

For the UK property industry, the fear among developers is of a move by the British government toward more restrictive "localism" planning rules.

The Conservative-Liberal Democrat coalition will also need to convince markets they are capable of bringing the UK public deficit under control, said Martin Moore, managing director of PRUPIM, the property investment arm of Prudential.

"The single biggest risk for our markets but markets in general (too) is when governments are seen not to grasp all the issues," Moore said.

(Additional reporting by Chyen Yee Lee in Hong Kong, Ilaina Jonas and Caroline Hummer in New York, Yuliya Komleva in Moscow, Kevin Lim in Singapore, Greg Roumeliotis, Cecilia Valente, and Lorraine Turner in London, Eriko Amaha in Sydney, Gilbert Kreijger in Amsterdam, Jason Benham in Dubai; Editing by Andrew Macdonald)