Market regulation and market conditions

Colin Dyer
Chief Executive Officer
Jones Lang LaSalle

The headline-grabbing event from yesterday evening was French President Sarkozy’s speech on the state of the world. Sarkozy put forth his point of view on the need for regulation of the banking system, and that this should be done on a coordinated, global basis. 

That seems a good plan, but incredibly difficult to achieve in the light of individual governments—like the U.S. and UK—going out unilaterally and announcing their own plans. 

Sarkozy was also pleading for a less globalized version of capitalism, with more respect for national boundaries. But, he said with a smile, “I know I’m under suspicion because I’m French.”  I missed his speech, but got this colour from those who were there. 

Interviews on market conditions 

Moving on to today, it was another freezing early start, again to do TV interviews. It seems to be an obsession with the media here to stage their interviews in the open air. It’s cold and it’s snowing, but they seem to like it that way. The only benefit I felt is that at least it wakes you up. 

The first interview was with Reuters, which was a general discussion about the state of the markets. You know our firm’s view on that: 

• Recovery in the capital market transaction volumes has started in some cities, and is generally spreading from Asia westwards.
• Like the stock markets, these capital markets transactions are anticipating a recovery in the fundamental demand for real estate by 12 -18 months.
• There are signs of recovery in those fundamentals, starting in Asia again, and spreading west later this year. 

The second interview was with CNBC, a double interview with Ken Rogoff, Economics Professor at Harvard University. Again the topic was the state of the markets. Offline, Rogoff told me he thinks that, with the possible exception of China and Australia, interest rates will remain low for at least this year, with governments very nervous at adding cost to scarcity in the credit markets. 

Conditions in world real estate and capital markets 

At lunch, I chaired the rather grandly named Governors Meeting for Real Estate. The meeting was attended by 40 senior people from real estate around the world. Anyone who is interested can get the names from me. 

My job was to kick the meeting off and, in ten minutes, describe the state of world real estate and capital markets, suggest some likely prospects for the future, and frame several big picture issues which are going to affect the real estate world for the next 12+ months. I’ll tell you those tomorrow, when I do the same thing with a larger audience. 

The tenor of the meeting was positive and upbeat, mostly because things are getting better each quarter. But among European and U.S. property people, there is an awful lot of uncertainty on the impact on banks and on their confidence and willingness to lend…because of the next item.   

More debate on the pace and scope of regulation 

One of the major questions in the air this week, perhaps the biggest single issue at the meeting, is the pace and scope of the regulation that will be applied to the financial sector. As I said above, President Sarkozy put his point of view, but there is a lot of debate as to how draconian such regulations should be and, indeed, about how they should be framed. 

The banking system is only one part of the broader financial markets. There are a great number of unregulated instruments and markets over which the banking regulators currently have no control. So the question is, how do governments get to influence that area? And how do they stop what they call ‘regulation arbitrage’ between regulated and unregulated sectors of the market and between more regulated and less regulated countries? 

It’s an interesting debate, and it’s going to affect us in a big way. Credit is obviously the life blood of the real estate investment markets worldwide, and the extent to which credit is freely available affects transaction velocity in our markets. 

I’ll talk about my impressions of banks’ attitudes to lending tomorrow. 

My only planned one-on-one with a client today was with Martin Blessing, Chairman of Commerzbank. The two of us perched on a balcony ledge in the corner of a busy coffee area. Not your usual senior client meeting venue. 

Responding to you 

Thanks for the comments, advice and questions that have been prompted by these notes, both from colleagues and clients. (That surprised me!) The pace of events here makes it difficult to answer in real time, so I will do a summary Q&A postcard next week. 

My daughter just emailed that yesterday’s postcard is on Reuters. Another surprise.

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Categories: World Economic Forum 2010