Mapping Where to Invest Next with Parag Khanna

Mapping Where to Invest Next with Parag Khanna

In this week’s podcast {Video & Transcript below!!) I’m joined by Parag Khanna managing partner of Future Map and author of Connectivity and the Future is Asian, to discuss how to map the next property investment hotspots, global trends and connectivity.

To find out more about Parag – https://www.paragkhanna.comor http://futuremap.io/

Twitter @paragkhannah

Transcript Below!

Natasha Collins:            Hello, everybody. Welcome to the NC podcast. My name’s Natasha Collins, and I am the founder of NC Real Estate, which includes its members club for landlords and property investors as a place to come to build a profitable property portfolio that completely aligns with their goals. I’m so very excited to welcome another guest this week. Parag Khanna is a managing partner of FutureMap and author of Connectography and The Future is Asian. Hello, Parag. How are you?

Parag Khanna:              Hi. Very well. Thanks so much for having me on the program.

Natasha Collins:            My absolute pleasure. I’m so excited to talk to you today, so thank you for coming on and joining me. Okay. So, I’ve got so many questions after coming to your keynote speech at the World Economic Forum. I was very inspired, and I’ve written down so much. So, I’m so excited that you’ve come here today and you’ve agreed to talk to me.

Natasha Collins:            The first thing that I really wanted to jump into is … I absolutely love mapping and GIS. I am not an expert in any way, and it’s been so long since I majored in GIS at university, but the movement of people and being able to see that via overlapping satellite imagery has really intrigued me. I did that as a project in my third year, which is why I wanted to ask you about how you’ve been using similar technologies to map investment hotspots. Can you go into detail about how you do that at FutureMap?

Parag Khanna:              Absolutely. I think you’ve rightly identified that to map the investment hotspots, it’s really derivative of a broader analysis that involves all of these geographic factors. For me, understanding the future geographic hotspots economically is very much about looking at demographics and capital flows and even geopolitical risks and other kinds of factors that you happening more broadly. Then, teasing them down to that local level and seeing how they play out.

Parag Khanna:              So, for example, I’d begin with demographic heat maps that show the distribution of the world population. I remove political boundaries. I focus on urban conservation. Some of them stretch across international boundaries, right? One of the things that I tried to argue in my Connectography book is that, in fact, the fastest growing populations in the world are often at borders because you actually have a lot of trade arbitrage across political, international boundaries. So, people actually seek to live at borders, and so that thematic, that’s one area, that one thing that helps you understand where people are moving and, therefore, of course, what becomes a property hotspot.

Parag Khanna:              Another is looking at politically-driven or fiscally-driven investment initiatives. So, if a country decides that it’s going to create a special economic zone to stimulate foreign investment and industrial activity, then you know that over time, you’re going to have a growing number of residents and migrants coming to those areas. That’s what we’ve seen in dozens of places in China, we’re seeing happening in Vietnam now. It also explains, obviously, the growth of much of the United in the 19th, 20th centuries with the expansion of the railways, for example, or, of course, the energy revolution, the shale revolution in Texas and in Western Pennsylvania and even in Western Canada and so forth, wherever we see industrial activity suddenly emerge or, just to take a very contemporary example, the bidding war over which city will be the second headquarters of Amazon, right? That caused a real estate speculative frenzy in various communities around the country, around the US, as the list was whittled down.

Parag Khanna:              So, that’s also something very important to look at, so investment issues, fiscal issues, demographic flows, the role of political relationships across orders if they’re improving. I try to create layerings of all of these, and then what results is this kind of heat map of what the sure fire or best … most likely winning urban environments are for future investments.

Natasha Collins:            So, with the different layers, where’d you get that information from? Is it things that you source from things like satellite imagery or … How do you forecast that that’s coming?

Parag Khanna:              No, that’s a great question. So, for example, I rely a lot on government data and policy for some types of things. So, for example, if a government says, “These are the …” If you take China, for example, where they say, “Here, for the next five years, is the major technology cluster that we want to invest in, like wind power or robotics or something, and these are the major universities and geographies where we’re going to start to make those investments.” Well, Chinese promises are fairly credible when it comes to what their domestic investment policy’s going to be, and so that’s not something that’s a backward indicator where you would say, “Aha. I see historical growth here. Let’s plan for the future.” That’s a forward-looking indicator that’s emerging right now. So, most people wouldn’t take that into account, but I would, and that helps me forecast a bit what the hot geographies are going to be.

Parag Khanna:              In other places … In other cases, I can look at the trend data, like, for example, urbanization. There’s lots of good data that we have from different sources. We have the urbanization rate in different cities. Simply put, how fast is it the city growing or not growing, right? So, we see that when property prices get too high in certain cities, you will have a plateauing, even a reversal, of their growth. So, we’ve seen that Beijing and Shanghai are not attracting residents as quickly as they used to because property’s just become too expensive. Also, immigration policy, right? You can see that if countries are turning cool on immigration and if they change foreign investment regulations around who can buy property, right, as New Zealand recently did, that’s going to have an impact, obviously, as well on the property market.

Natasha Collins:            Okay. That’s really interesting. So, are you also looking at changes in government structure as well? So, for example, are you already forecasting at the moment for what’s going to happen in the US next year, for example, if Trump gets in or he … or you got a Democrat in and are you also forecasting for things like Brexit in the UK?

Parag Khanna:              Oh, most certainly. That’s, obviously, very, very important. If you take Trump, his policies have massively reduced foreign investment into the US, although you can see how, when it comes to property and real estate investment, there’s still many opportunities for foreigners to buy in, obviously, to the United States through various state-level or federal investment migration kinds of programs. So, people are still taking advantage of that. With Brexit, I think it’s something that’s much analyzed. I’m sure you’ve done entire programs on it.

Parag Khanna:              On the one hand, the UK still has it a certain safe harbor kind of stature, but on the other hand, you definitely have to do a more complex analysis to try to tease out whether or not it’s going to continue to be an attractive geography in the years ahead because I think that a lot of the reason why people would choose to invest in the UK its because they would want their children to study there, they would want to have a UK passport eventually, they would want access to the greater European common market, and if those things are no longer going to be possible, then people are going to be less likely to invest in the UK. So, I don’t think that just short-term indicators where people say, “Oh, well. The currency remained stable,” and, “Oh, well. We still have lots of capital coming in,” that’s not efficient in terms of doing a proper longterm analysis of what the true impact of Brexit is going to be on the UK property market.

Parag Khanna:              I really think that you … Quite frankly, I, with apologies, obviously, to Brits, but I am a bit … I am a bit worried that … In the same way … In the exact same way that the decision itself rested on some degree of miscalculation about the actual benefits versus costs of being in the EU, people think of London just for the sake of London, but one of the, I think, most significant aspects of what I’ve tried to document about the role of cities in the world is that the value of their connectivity versus their total economic value is almost unquantifiable, right? So, how do you figure out what is just the GDP of London absent the role that London plays in connectivity-

Natasha Collins:            Yeah.

Parag Khanna:              … or the role that connectivity plays in the London economy? the answer is “You cannot.” my line on that is you need quantum physics, right? You’re better off using quantum physics than economics to figure that out because the answer is “You can’t,” and that itself is the highest form of appreciation, to say that something is priceless, right? Connectivity is priceless. You miss it when it’s gone. So, I really think that the longterm impact will be quite significant because you’ll be able to measure what you’ve lost, and we see that every week with people assessing how much money the UK economy has lost, but in any case, I do think that it requires a much more complex model.

Natasha Collins:            So, how far into the future do you look at mapping? Do you say, “Okay. This is what’s going to happen over the next 12 months, over the next 5 months, over the next 5 years, over the next 10 years?”

Parag Khanna:              It’s a great question. Well, industries like real estate will actually derive from things that are happening over the next 6 to 12 months, right? So, as an industry, if I’m looking at the things that are going to happen in the next one to two years … One to three years is usually what I look at, and I really think it’s very difficult to forecast beyond that. But let’s say that I have certainty about things that are going to happen in some countries.

Parag Khanna:              Like, for example, I believe that in the next three years, India is really going to finalize bankruptcy laws, foreign investment laws and open up more in terms of capital account liberalization, and I am confident that now that Prime Minister Modi has been reelected with a strong mandate, those laws are going to get pushed through. Well, then, obviously, in the short-term you’ll see a hooray from the markets, as we saw, you’ll obviously see a strong boost in certain sectors immediately, but for real estate, you want to think in a more macro way, in a more systematic way, and say, “Well, now, following this restructuring, we’ll start to see more sources of credit because credit is going to be very tight and expensive in the Indian property sector. Now, five years from now, we should have a much broader market place, much more stability, much more diversified construction activity going on in sustainable financing,” right?

Parag Khanna:              So, I think that your industry has the … I don’t want to call it a luxury, but I think it’s important to, if you’re in an industry that can longterm, that you should take that opportunity and not only just live in the short-term.

Natasha Collins:            I agree. I agree. Have you seen a change … This is a question I want to ask you because with my students who I lecture to for property management, they are dotted all around the world, and so for … It’s mainly commercial real estate that we’re involved in for the property management modules. The western students, should I say, so the people who are in Europe, the people who are in the UK, the people who are in the US, are significantly seeing retail go into decline. But my students who are based in Hong Kong and the UAE don’t seem to be seeing that change in retail. Have you noticed that at all? Is there a significant difference in how the commercial real estate industry is changing and how that’s changing across the world as well?

Parag Khanna:              Absolutely. That’s a fantastic question. It’s one of the things that I try to get into in my Asia book because I talk about the demographics of Asia, the flows of people, the youthfulness around Asia, young people moving en masse in the mega cities, the importance of the mixed use property market and the retail sector and the mall development, and I point out how if you were to just Google “Top 50 new shopping mall projects in the world,” half would be in China and the other half would be in the rest of Asia and none would be anywhere else, right?

Natasha Collins:            Yep.

Parag Khanna:              So, we do see, at least for this secular period, still strength in that area, also because e-commerce is not yet undercut it in the way it has in the West. So, I talk about how we think about e-commerce versus retail as an either/or phenomenon, right? One, they’re directly competing with each other for limited pools of capital, right, spending power, consumption power in a society with a very finite number and with aging populations, and consumption tends to decline past the age of 46, but if you’re looking at Asian cities with young populations and the populations are growing and incomes are rising, then you don’t have that trade-off yet between e-commerce and retail. You have not either/or, but both/and. The question, really, is how long will we have the both/and phenomenon in places like the UAE or in India or elsewhere?

Natasha Collins:            Yeah.

Parag Khanna:              Most evidence suggests that Asians are still both/and type of people. They still want to touch and feel and try on and taste and go out for the experience and see and be seen and all of those things and they don’t just want to sit at home and order from Amazon and have a drone bring it to them. So, that’s kind of where we are with Asia. But again, Asia is very diverse and unequal. It’s not a country, right? It’s a mega-region of nearly five billion people with immense wealth and also poverty. So, we won’t see the same answer in every country as to how long that sweet spot lasts for the commercial market.

Natasha Collins:            Okay. But there’s definitely that difference. I kind of feel it, but I don’t see it as on a global scale as you do. So, it just really, really interests me about how that’s going to be changing. So, can we talk more about the Belt and Road Initiative? It’s something that you talk a lot about and something I’ve only started understanding through reading your book, The Future is Asian.

Parag Khanna:              My favorite topic.

Natasha Collins:            But anyone listening that is new to this, can you explain what this is and how we will be impacted by this, both in the UK, the US and globally?

Parag Khanna:              Well, I can give you the two-hour version or the two-minute version. Let’s go for the two-minute version, if I can. Even start your stopwatch. Basically, look, starting in the 1990s, China became the world’s largest importer of raw materials and exporter of finished goods, like electronics and so forth, so they needed to have more diversified supply chains and transportation corridors. They’re so dependent on goods coming in through the Strait of Malacca between Singapore and Indonesia, this narrow, strategic waterway and everything being transported by ship. They said, “Well, we need more land corridors as well to reach our biggest export markets, like other Southeast Asian countries. Europe is actually … Europe’s China’s second largest trading partner behind its Asian neighbors, and, of course, they rely on importing oil from the Middle East. So, they said, “Okay. Let’s start to build all of this new infrastructure and coordinate it with all of these countries that are neighbors and our neighbors’ neighbors,” and that, over the last 30 years, has evolved into what, in the last couple of years, has come to be known as the Belt and Road Initiative.

Parag Khanna:              That, in a nutshell, is what it is. It’s just the largest coordinated infrastructure investment initiative in human history. It adds up to trillions of dollars across government and private sector allocation. It’s become much more public and private in nature. There’s 70 or 80 or more countries involved. It’s mostly bilateral relationships with China. But to me, if Belt and Road is shorthand for the so-called New Silk Road, as many people like to say, to use that romantic terminology, it also is not just about China, and this is, to me, the central part of the argument. It’s actually … Everyone is connecting to everyone, right? It’s Russians connecting to Iranians to Indians and Indians to Southeast Asia and Southeast Asians to each other, and all of that is also the New Silk Road. So, ancient silk roads were not just one direction to China and back from China. China is actually just kicking off this much bigger process. So, that’s, roughly, Belt and Road.

Parag Khanna:              What does this impact? Well, it’s certainly accelerating the Asian-novation of the center of gravity of the world. I talk about this shift towards the greater Indian Ocean region. Most world trade and goods today is already happening between China and the Pacific Rim, Southeast Asia, South Asia, Middle East, and East Africa, so, in other words, all of the territories that are along the Indian Ocean. That is today already right now, and for quite some time already, the center of global trading. All of that will be accelerated because of this increasingly seamless connectivity between countries.

Natasha Collins:            It’s so exciting to read about it and see it. I was reading … It’s a train line that’s going to go all the way from China to London with lots of different stops?

Parag Khanna:              There are already several. These are mostly freight. So, this is imagined mostly as a freight process and route, right? This is all about transportation of goods. There are trains already for people, like the Trans-Siberian railway, for example, and there’ll be more of that. But the fact is that short-haul aviation is also rapidly evolving. So, you really don’t need to take a 18-day train ride when you can just fly for a few hours, right?

Natasha Collins:            Yeah.

Parag Khanna:              So, I think this is really about the efficiency of the movement, commodities and materials and goods.

Natasha Collins:            Yeah. So, that’s kind of linking everything together. With that, I remember you saying something about there being new Visa opportunities as well. So, this is … Is it the Silk Visa that’s allowing the movement of people?

Parag Khanna:              Well, most countries in the region have been liberalizing their immigration policies and visit station policies and so forth. So, I certainly remember having to queue up for days to get Visas for Uzbekistan and Vietnam and all sorts of other places. Nowadays, you just get it on arrival. The digitalization of the process has helped immensely. So, Visa on arrival is pretty much everywhere, even like Turkmenistan, technically. So, I think that is helpful. So, that’s something that each individual country is doing. Then, in terms of preferential access, Asian country’s passports are becoming much more mobile and valuable in terms of cross-border mobility between each other’s countries.

Parag Khanna:              So, if you have a Chinese passport, 10, 15 years ago … I don’t know … maybe you could have gone to 50 countries without a Visa and now you can probably go to 100 or 120 countries without a Visa. So, that’s also happening at the same time. Yeah, all the Central Asian countries have moved towards what they call a Silk Visa, where they give each other Visa-free access so that they can just trade commercially. I remember that for most countries, most trade is regional, right? It’s your neighbors. So, that’s extremely important. Globalization is the sum total of all of those cross-border liberalizations that that are happening.

Natasha Collins:            Yeah. So, do you actually think that we’ll start seeing a movement from West to East rather than East to West, you will start seeing a lot more Americans and English and European people moving the Asian continent or you’re already seeing that?

Parag Khanna:              We are, in fact. When it comes to talent, for sure. Countries like China now have their own versions of a green card, I, jokingly, call it the red card, where if you’re a technology expert, scientist or whatever, they’ll gladly have you live for five years, and after five years, if you’re contributing to society or the economy, you can potentially be granted permanent residency or something like that. That’s just one example. Lots of other countries doing it. Singapore is doing it as well. So, that’s being taken advantage of by Westerners who are already quite established, academia or other professions.

Parag Khanna:              You see a lot more expats and retirees choosing to be here on a permanent basis. Places like Bali and Phuket are sunny and warm and affordable and well-connected now digitally and physically. So, they’ve become choice destinations for people to live for the long term and just be digital remote workers. You see lots of young startup entrepreneurs saying that they want to try their luck in Asia first and foremost because this is where the growth markets are and maybe they’ve already been learning Chinese or some other Asian language, so they want to put it to use. So, a lot of those things are coming together at the same time.

Natasha Collins:            I see a lot of Brits moving over there when they can’t get into Europe…

Parag Khanna:              No doubt. No doubt. Well, I think you raise an important point, by the way, which is that this is a competitive marketplace, so war for talent, there is a perpetual arbitrage happening in the world. Just because investment may slow down in one place, it doesn’t mean that it’s not a expanding somewhere else, and this is a critical thing. So, talent will move. Talent will flow like water down the mountain, right? It find a way, and so there’s no question that we’re seeing … This is why, whether it’s Estonia or Germany or Romania, these are three examples of just European countries, let alone Asian countries, that are saying, “Oh. No longer going to work in London or set up your company in London? Come here. We’ve got cheap tech talent, we’ll let you register your company in one day, and we’ll have no tax on corporate profits for three years,” or something like that, right?

Natasha Collins:            Yeah.

Parag Khanna:              So, the fact is that everyone has learned from everyone else how to play this game, so making mistakes becomes very costly. You can’t rest on your laurels forever and assume that you’re always going to be the best. It’s a very competitive world. Personally, I think that’s a good thing because what I see it doing is that, in Asia, it’s accelerated the anti-corruption drive. There are a lot of countries, going back to Belt and Road, that are saying, “Whoa. China’s promising us all this money, but if we screw this up, no one else will ever invest in us either, so we better get this.”

Natasha Collins:            Yeah.

Parag Khanna:              So, I see a of tightening of the belt and stiffening of the spine and countries that were just hopelessly corrupt and clueless in terms of their government just some years ago, now I see them straightening up and saying, “We’re going to get this right. We’re not going to mess this up,” and I think that’s because, also, they see that if they don’t play along with the Chinese investment carrot, right, then another country will get it and then there’ll be jealous and angry and bitter that they messed up and their people will find out about it now because you have more transparency and democracy than ever before and their people are going to say, “How could you mess this up and lose this investment deal to our neighbor?” I’m seeing that, with rising education and transparency and awareness of what’s going on and people just being fed up with corruption and poor public services delivery and low quality infrastructure, all of these things feed into each other in a very positive way. It really is a positive story.

Natasha Collins:            Definitely. Again, it goes back to the talent because you want to be in a country where you’re treated right as well. I’ve had friends who have moved to different countries in real estate and have had terrible experiences and have gone back to the UK, but they said that if they’d been treated fairly, there wasn’t the corruption that they’d had to deal with that they didn’t have to deal with in the UK or in Europe, then actually, they probably would have stayed because the quality of life overall is better. So, it’s about if you clean everything up, then actually, you do attract attract the talent, which makes your businesses more profitable, which makes more people want to come, which makes the country more valuable.

Parag Khanna:              Yeah. I mean, no one leaves Singapore voluntarily once you’ve come and lived here and enjoyed the quality of life and the conveniences and the efficiency and the standards of excellence in government and education and public safety and law and order and all those things. I mean, I’ve lived here six, seven years, being in and out, but of the thousand people that I know here, I’ve never known anyone who wants to leave.

Natasha Collins:            How long … So, you’ve lived in Singapore for six or seven years. Where did you move from? The US?

Parag Khanna:              London, actually.

Natasha Collins:            London? Ah. Okay.

Parag Khanna:              So, I had the premonition that a populist wave was coming and … No, no, no. I’m just kidding. We actually left in 2012, and it was … Being in London was more academically linked, so it was not ever going to be a permanent thing. I spend so much time looking at global cities and ranking global cities and looking at those methodologies of data, and I personally still think of London as the greatest city in the world. When it comes to talent, if I think about pound for pound, where’s the best concentration of brain power in my personal Rolodex, it would still be London. But, again, that’s precisely why I worry because it’s not an eternal condition.

Natasha Collins:            Yeah.

Parag Khanna:              If you’d asked me 10 years ago, I would have said New York, and I don’t really say that about New York anymore, even as a New Yorker. I’m trying to be as objective as possible. But I do see it aggregating in Singapore. I see writers, journalists, academics, finance professionals, startup entrepreneurs. In all walks of life, I’m seeing talent coming here voluntarily and saying, “We’re just going to register here, do our own thing, ourselves with XYZ, operate regionally.” There’s so much more … many more nonstop flights to places like San Francisco, Seattle and so forth. So, I see that a trickle can become a flood, right? So, cities in Asia are doing whatever they can to attract that talent and to try and become places like London.

Natasha Collins:            I’ve never been to Singapore, but you’ve sold it to me next door.

Parag Khanna:              Oh, for sure.

Natasha Collins:            Sounds amazing. So, do you think that this change in … Going back to the Belt and Road, it’s bringing the world closer together. Do you think it will impact on how we invest or how we should be investing our money in real estate?

Parag Khanna:              Oh. Look, absolutely. My company, FutureMap, is working on what we call the Belt and Road heat map, and we’re really trying to drill down to the provincial and city level for 10 to 15 major economies that are participating in this broader Eurasian Belt and Road process, everything from the Mediterranean and the Persian Gulf region to Central Asia and Southeast Asia. So, looking at major countries, whether it’s, like, Russia and Pakistan or Thailand, Vietnam, the UAE, Saudi Arabia, even Turkey and Italy. We’re trying to forecast. If you really try to map out where the connectivity is going to be, which projects, what value are they going to add, where will you see wages rise, what sectors are going to grow the fastest and exactly where, what cities and provinces, then there’s no question. You can make confidence forecasts about where property markets are going to thrive.

Natasha Collins:            What does a location need to be a prime investment hotspot in your opinion?

Parag Khanna:              Oh. I mean, as you know, it’s sort of a complex alchemy, right? There are many things that make a place desirable and livable. It can’t just have good architecture, right? I mean, it has to have stable economic environment, jobs, investment, upward mobility, a social culture. All of those thing are necessary, and the city is not an island. It’s part of an ecosystem of federal regulations and part of a national state, and so you have to have some predictability about that dimension as well. Things can be going well enough in a city, but not well in a country.

Natasha Collins:            Yeah. So, can we go back to the issue of connectivity? We started talking about it, but I want to delve a little bit deeper and to ask “Why is connectivity so important?” and “What defines good connectivity?” I know we spoke about it in terms of London and the impact that Brexit’s going to have, but what does it mean and why do we need to concentrate on it?

Parag Khanna:              I mean, connectivity is sort of shorthand for all the infrastructure that we build, right, which is to say, whether it’s transportation, railways, highways, whether it is energy, pipelines, electricity grids or communication, like fiber optic Internet cable, satellite, the quality of broadband connectivity in the city. You could also, obviously, apply it to social dimension of connectivity. How much creative spark is there? How much social culture and dynamism is there in a city? All of those things are part of this notion of connectivity.

Parag Khanna:              In cities, it’s particularly important because cities are very much driven by the services economy, which is all about relationships between smaller firms and businesses and it requires much more seamless interaction between people. So, to me, connectivity’s especially important in the intra-city context. Just because the city is big, like Jakarta, it doesn’t mean that it’s a whole greater than the sum of its parts, right? Jakarta is a sprawling mess. It takes hours and hours to get across it. It doesn’t have these dynamic, thriving, micro-neighborhoods and seamless underground transportation system to encourage that broader dynamism that makes a city feel much bigger and greater. So, they have a long way to go in achieving the potential of connectivity.

Natasha Collins:            So, do you think that connectivity is … Is it really closely linked then to things like technology and sustainability? Do they connect?

Parag Khanna:              Oh, without a doubt. So, technology, yes, because with each evolving generation of technology, connectivity can be improved and accelerated, right? Obviously, we see this with communication. We don’t use telegraph cables anymore, right? We use Internet cables, fiber optic Internet cables and satellite and so forth. So, with every generation, you see that improvement. I think that’s part of, also, what matters for your industry, is looking at how those technologies are being deployed.

Parag Khanna:              So, there are various indices, for example, of the technology preparedness level of a city to really integrate the latest platform technologies that enable more efficient economic activity and that enables smart services, citizen empowerment and access to public services and access to data and all of those kinds of things. So, you would want to look at those kinds of indicators as well because just because certain technologies exist or are being deployed, it doesn’t mean that all cities all over the world, obviously, are integrating them well at the same time.

Natasha Collins:            Yeah.

Parag Khanna:              So, I use indicators like that quite regularly to help me see which cities are doing the best job, but also, obviously, where the opportunity is, right, for you to work with technology partners to help develop a city that knows it wants to catch up, but hasn’t done it yet.

Natasha Collins:            How long does that process take? If a city goes, “Oh, we need to catch up with technology and sustainability?” that’s a huge thing to start thinking about, right, or can you do it slowly?

Parag Khanna:              Well, I don’t think any city is alone anymore, right?

Natasha Collins:            No.

Parag Khanna:              … because you’ve got lots of technology partners and international agencies and VOs and so forth that wants to help simulate that process. So, it is well underway just about everywhere, except for the truly poorest places in the world. So, that’s not really a big a concern. I think. I think that the … I, really, to be honest, I see this activity driving in every city in the world. The question is just “How long will it take?” right?

Natasha Collins:            Yeah.

Parag Khanna:              It will take a long time for an Indian city to reach the standards of a Chinese city, even if they have similar populations and even if they started out similarly poor, right, because, obviously, you have this preexisting built environment, you have the thickest of regulations, you have the slowness of bureaucracy and so on and so forth. But, eventually, we see places getting there. It’s hard to generalize that whether it can take a long time or happen quickly.

Natasha Collins:            So, what could we do as property investors to make sure that we’re moving towards sustainable property portfolios, because, obviously, it has to start somewhere, and if we’ve got property portfolios in the ground of these cities, what should we be looking to do? Where should we be looking to get involved with this?

Parag Khanna:              Yeah. I mean, there’s no question that now, every sector of the economy has to price its climate risk, its water exposure, the impact of climate change and air pollution and so forth. Obviously, we know what’s happening to coastal real estate and the ability to purchase insurance on coastal property around the world. That’s one example. The other is air pollution. We’ve seen that Gurgaon, the suburb of New Delhi, was driving its construction market to set up businesses and retirement colonies and so forth, but people didn’t factor in just how bad the air pollution would become through economic development, and so it feels quite unlivable there right now. So, I think you really do, again, need kind of complexity approach that takes into account these factors.

Parag Khanna:              Water availability, right? I don’t think that most people trained in a traditional approach to real estate would have factored … would have taken into account that cities, like Sao Paulo, would be running low on water, right? You’d be saying, “Wait a minute. They’re pretty close to the Amazon Rainforest. Why are they running out of water?” Well, you’d have to look at the agricultural policies and the reservoir management policies of the country to realize that there are some things going wrong and, therefore, you may have to rethink where you’ve placed your best and build your next project.

Natasha Collins:            So, as a final question then, what can we really see changing in the real estate sector and property investments globally over the next five years? What big changes do you think we’re going to start seeing?

Parag Khanna:              Well, let’s say that one change might just be the acceleration of what’s already been happening, which is rapid urbanization will continue in developing countries, but there’ll be a greater emphasis on the second-tier cities, the places that you haven’t yet heard of, because remember, when you’re talking about country with populations of 100 million to a billion people, they can’t all fit in one city, so everyone wants … every Filipino may want to live in Manila, but they’re actually not going to, right? It’ll be too crowded and too expensive. So, government, smart governments, and this is happening in India too, are saying, “Look, you can’t all be in Mumbai, right? Let’s start to develop, not just Bangalore either, but Hyderabad and Chennai and other second-tier cities and make them larger, make them better run, better managed and look at populations of 10 million instead of 20 million, 30 million.

Parag Khanna:              So, I think you’ll see a lot more emphasis on driving investment into second-tier cities, and a portfolio that includes those would be sensible because those will be rapidly appreciating assets. Again, it surprised us many times already how you may never have heard of a city until recently, and yet, you see it skyrocket in value, and I think that will start to happen as well in some of these second-tier cities in Asia. So, that’s a big trend.

Parag Khanna:              I think, again, the integration of the ESG and especially the environmental angle in pricing and vetting and thinking about the resilience of a portfolio is going to be more and more important, something that all people in the industry should be applying to their portfolio, especially because you’re looking at assets that are decades in duration. So, I think that’s also really important. So, we already know some of these things. Thing about trends is that you already know what they are, you just have to think about how much they’ll be amplified in the future.

Natasha Collins:            Well, I absolutely loved having this conversation. Parag, thank you so much for coming on the podcast today. I really, really appreciate it.

Parag Khanna:              Oh, it was my pleasure. Nice to speak with you.

Natasha Collins:            It’s really nice to speak with you. I am going to put details of how you can find out more about FutureMap and Parag’s books all below in the show notes, so make sure that you have a look at that. Thank you, everybody, for joining us today. If you want to find out more about NC Real Estate, head on over to www.ncrealestate.com.uk. If you love this podcast, don’t forget to hit like and subscribe because it comes straight to whichever podcast provider you use every single Tuesday morning at 7:00 AM UK time. Thank you for listening today. I cannot wait to catch up with you again soon.