REAL ESTATE - Former Federal Reserve chairman Alan Greenspan thoughts on the economy were one of the highlights at the annual conference of the Association of Foreign investors in Real Estate held in Boston last week.

"If the economy is sufficiently flexible the shocks of bad leverage can be absorbed," Greenspan said. He noted that "too much regulation would be dangerous because it would make the system too rigid."

Janice Stanton, senior managing director at Cushman & Wakefield Investors pointed out that "real estate is trouncing other asset classes. Pension funds are increasing their allocations; a 1% increase means a US$600bn increase in capital flows which can really impact on pricing."

She also noted that real estate capital flows are driving investment activity in the US 2005/6. "Office remains the strongest of property types in terms of deal volume," she said. "Bidders today are active across all sectors - public, private, domestic, and international, in particular middle eastern money."

She added that secondary and tertiary cities such as Phoenix and Dallas are experiencing very high trading volume. "The most volatile market is San Francisco because of the tech crash," she said. "But Washington DC and New York City have the highest rents and lowest rates of vacancy. So the prime terrorist targets are also the strongest real estate investment markets."

Noble Carpenter, international director of the International Capital Group at Jones Lang LaSalle pointed to the increasing global transparency as a major investment driver. He noted that the principal investment markets in Europe are the UK, Germany, France and Sweden. The UK and France offer opportunities mostly in the office sector while Germany has opportunities in retail and residential. He also emphasised growing pricing parity among major and not-so-major cities.

Marvin Zonis, professor at the Graduate School of Business, University of Chicago, highlighted the fact that 90% of new-issuance treasury is bought by non-US citizens who also hold 50% of current stock. "There is a fear that non-US investors will come round to the view that a US$-denominated asset is not a solid asset," he said. Zonis added that the main risks are failing states and that "political stability is crucial."

Non-US markets generated much discussion at the conference. Panellist Ian Hawksworth, managing director of Capital and Counties pointed to the difficulty of repatriating profits from investments in China. "It is a major challenge," he said. "Furthermore a proper calculation of the risks is not possible in China - there are too many unknowns. You must develop a local operation in China."

Brian Newman, principal at Merrill Lynch noted the good prospects for the office sector in India. "The country's 2.5m graduates annually - all from good universities - will boost the demand for the sector." He also drew attention to residential opportunities in some of India's second cities.