Industry AgendaEmerging Horizons in Real Estate An Industry Initiative on Asset Price DynamicsExecutive Case StudiesJanuary 2015 © World Economic Forum2014 - All rights reserved.No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording, or by any information storage and retrieval system.The views expressed are those of certain participants in the discussion and do not necessarily reflect the views of all participants or of the World Economic Forum.REF 070115ContentsForewords Foreword by the World Economic Forum Foreword by the National Bank of Austria Foreword of the Bank of Mexico Contributors Executive Summary: Initial Recommendations Executive Summary: Key Themes Executive Case Studies: Overview United Kingdom – Mind the gap: the building cycle in the 1974 London office marketIreland – From boom to bust: the Irish experienceGermany, Austria and Switzerland – The need for macroprudential policy measuresScandinavia – Deregulation under fixed exchange rates and a tax code favouring debtSpain – From an inflated real estate and construction sector to economic depression United Arab Emirates – Dubai experiences a typical real estate bubbleSouth Africa – The decline and revival of Johannesburg’s central business district: how coordinated action can reverse urban declineAustralia – How research and analysis could have limited the amplitude and duration of Sydney’s office market cyclesJapan – Collapse of the myth of ever-rising land prices in TokyoHong Kong – Back to the 1990s: will history repeat itself?China – Pricking the Shanghai bubble: government intervention in a newly commercialized marketIndia – How policy reforms led to bull runs in the Mumbai and Bangalore office marketsUnited States (Arizona, California, Florida and Nevada) – Desert Storm: housing boom and bust in the Sand StatesBrazil – Residential property prices indicate the start of a new real estate eraMexico – Lessons from the Mexico City real estate bubbleContact Information 3356710101114171921242730343638414345474951Prepared by the Steering and Advisory Committees of the initiative on Emerging Horizons in Real Estate – Asset Price Dynamics 3Emerging Horizons in Real Estate - An Industry Initiative on Asset Price DynamicsForewordForeword by the World Economic ForumReal estate markets have become more international, particularly with respect to commercial real estate, which accounts for a substantial proportion of the total real estate market. The global flows of foreign investment may make local markets more susceptible to real asset volatility. Even though speculative bubbles show certain commonalities, no single definition and no unanimously accepted single root cause of their development exist. However, it is commonly agreed that underlying mechanisms, such as self-reinforcing feedback loops and groupthink dynamics, lead to property prices well above the level justified by market fundamentals. The development of a speculative bubble can be described as a “social epidemic of enthusiasm”, in which increasing asset prices create further excitement, which in turn attracts more investors. After the financial crisis of 2007-2008, economists have turned their attention to what they truly know about real asset cycles, since market volatility cannot be explained by models of purely rational choice. Policy-makers are currently reconsidering whether major cycles or “bubbles” can or should be managed in the public interest. In the first year of the initiative, we tried to understand better the underlying mechanisms of asset pricing and the root causes of asset bubbles, and to investigate leading theories on how to identify and detect emerging cycles. With support from these case studies, lessons were taken from history, and the impact of highly volatile markets with boom and bust cycles were assessed. Facilitated by the World Economic Forum, the Advisory Committee focused their multistakeholder discussions with central bankers, academia and business leaders on how asset volatility can be moderated and its consequences limited. Based on the recent findings, some initial industry recommendations on how policies and strategies might contain and mitigate negative consequences of asset price volatility were developed.First and foremost, we would like to thank this compilation’s case-study writers for their valuable contributions. This extraordinary collection of insights would not have been possible without their help: Alfonso Humberto Guerra de Luna, Ashutosh Limaye, Craig Hean, Cr