Charting Next Emerging-Market Housing Boom

NEW YORK (TheStreet) -- Today's chart plots the residential prices of major cities around the world against the purchasing power of the people who live there. The upper left quadrant contains cities that are the least affordable. That means the cost of housing is high while the average income per household is low.

What about the lower right quadrant? Abu Dhabi is the outlier because it has the third-highest GDP per capita in the world behind Luxembourg and Norway, but residential prices remain low. This can be both a good and bad quality. On the one hand, Abu Dhabi has a very wealthy population, which reflects the city's economic vitality. On the other hand, residential prices are still showing the effects of the 2008 crash when prices for high-end apartments and homes fell 35% in just three months.

The ideal place to be is in the center, striking a balance between residential prices and incomes.

Two cities that are moving toward the center, though at different speeds, are Moscow and Istanbul. Residential real estate in Russia and Turkey stands to benefit from historically low interest rates, recovering unemployment and improving consumer confidence, according to Bank of America's (BAC) Merrill Lynch.

In Turkey, the strength of the recovery has resulted in record auto sales, growth in mortgage loans and restored consumer confidence, Merrill Lynch says. Recently, this strength has raised inflation concerns but there are several pillars to support the residential market.

Demand from the young and growing middle class is jumping as developers have begun offering smaller units, banks are offering longer loan durations and interest rates are at an all-time low. As a result, mortgage loans have grown 32% so far this year and are estimated to rise an additional 30% in 2011.

If you need more evidence, just look at what happened last week when property developer Emlak's initial public offering jumped 12% in its first day of trading and another 11% the next day. We were fortunate to participate in this offering in our Eastern European Fund (EUROX); adding Emlak to the fund's existing weighting in Turkey. Emlak isn't the first Turkish company looking to tap into Turkey's potential growth. Six Turkish real estate investment trusts have already sold shares to the public this year, according to Bloomberg.

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