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Property exposures in Asia present a varied risk profile


Asia is the home of two of the world's fastest-growing economies --China and India--and has seen its economy boom in recent years. But property risks inherent in the region present developers, owners and occupiers with a varied risk profile.

Natural catastrophes pose perhaps the greatest risks in the region. Much of the southeast of the continent is contained in the so-called "ring of fire," where earthquakes, volcanoes and tsunamis are a threat, particularly in coastal areas.

At least some of these natural catastrophe risks can be avoided. Marie-Gemma Dequae, group risk manager for Kortrijk, Belgium-based metals company N.V. Bekaert S.A., which employs around 3,500 people in China, India and Indonesia across nearly 20 plants, said that floods and tsunamis in particular can be avoided through careful research.

"The risk of nat cat is, of course, higher than it is, for example, in Europe. But we have plans which we use to examine the location of a potential plant carefully so that we can avoid these disasters," she said.

Hurricanes are more of a problem, Ms. Dequae said. "If strategically you have to be in the region, and if the whole region is subject to hurricanes, this is something you have to bear in mind when constructing your building," she said. Ms. Dequae explained that Bekaert has a technical manual that it follows when constructing buildings in such high-risk areas.

The speed of construction projects in Asia also brings its own risks. "In Europe, projects typically take 12 to 15 months. But in China, for example, the average time period is around three or four months," said Ms. Dequae, who attributes the speed to the large available workforce and the surfeit of contractors.

But it may also have an effect on the quality of the buildings being constructed. As David Ketley, insurance manager for Cargill Europe and Asia Pacific in Cobham, England, pointed out, most of the buildings are not high-value properties as might be found in Europe and the United States, for example.

In addition, there are some risks that can't be avoided, such as the threats posed by pandemics and political change.

Not quite unique to Asia but certainly characteristic of the region is the risk posed by pandemics. "Southeast Asia seems to be the home of potential and actual pandemic viruses. Asian influenza, severe acute respiratory syndrome and avian influenza being the most recent," said Mr. Ketley. While this is not strictly a risk to property, it is a risk to staff and can, therefore, affect business.

And though the political risk profile is relatively low, it does exist. Mr. Ketley points to the southern Philippines as potentially unstable, as Abu Sayyaf, the militant Islamic group, seeks to establish a Muslim state in the region. But this does not pose a threat to international companies in Asia, as the Philippines has yet to emerge as a market that holds much interest for foreign investors.

While Asia is home to two of the remaining communist states--China and North Korea--only China, as one of the world's fastest-growing economies, is of particular interest. While it may be politically opaque and highly regulated, it is relatively stable, experts say. Moreover, the market is booming and increasingly open to foreign money.

When faced with these challenges, property owners and managers can only ensure that they have adequate protection and business interruption procedures in place. Businesses need to ensure that they not only have adequate security in place to protect their staff, but also have a workforce trained and aware of what to do in emergency situations, experts said.

Ms. Dequae said that Bekaert is growing rapidly in Asia and the company conducts a lot of training to ensure that employees are fully briefed according to the safety manual.

Mr. Ketley said contingency planning is the key to managing these property risks, particularly those associated with pandemics and politics, in Asia. He argued that businesses should, for example, have evacuation plans for key personnel, and alternative locations lined up from which to operate in the event of having to close a plant.

"Businesses have no control over political or pandemic risks," Mr. Ketley said. "They can't stop them happening, so all they can do is prepare for such an event and have contingency plans ready."