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Asia Property Report - November 13 - News
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The Asian real estate investment market continued to gain momentum in the 3Q of 2009 as capital values generally stabilised, sentiment improved and the bid-ask spread narrowed, particularly for quality yield-accretive assets in prime locations.
Direct real estate investment in Asia jumped 25 percent quarter-on-quarter to an estimated US$9.1bn. Hong Kong accounted for 36 percent of the total volume followed by China, Korea and Taiwan. However, overall transaction volume remained low in the first nine months of 2009, falling by 49 percent year-on-year according to CB Richard Ellis’ 3Q 2009 Asia Investment MarketView report.
The office sector attracted US$4.7bn of investment during the quarter, or 52 percent of the total flow of capital. Residential properties accounted for 16 percent, with the retail sector comprising 13 percent of the total volume. Despite the relatively low transaction volume in the hospitality sector, a total of six hotel transactions worth a combined total of US$300m were concluded during the quarter, surpassing within three months the five transactions recorded in the first six months of 2009. Transactions involving industrial properties also showed signs of improvement with a total of 24 deals concluded between July to September, a similar figure to the total number of deals completed in the first six months of the year.
Amongst the key Asian investment property markets, Hong Kong was most active, accounting for 36 percent of total investment in the region. The US$3.2bn worth of transactions completed in Hong Kong during the review period was only slightly less than the peak recorded in the territory in the fourth quarter of 2007. Private and local buyers demonstrated a strong appetite for investment property while a number of foreign institutional investors took advantage of market conditions to take profits or reduce their overall portfolio size by disposing of selected assets. The largest transaction in Hong Kong recorded during the third quarter comprised the en-bloc disposal of Nexxus Building for approximately US$465m, which was also the largest deal completed in
Asia during the review period.
China enjoyed a strong rebound in transaction volume with deals totalling US$1.6bn, up by 82 percent quarter-on-quarter. Domestic buyers including insurance companies, banks and state-owned
enterprises dominated activity, accounting for 80 percent of all transactions. In line with the overall trend witnessed around the region, investors in China demonstrated a preference for office and residential properties, with total investment in the two sectors accounting for just over US$1bn.
In Taiwan, sales of commercial properties climbed by 6.5 percent quarter-on-quarter to US$1bn during the review period, with acquisitions by local life insurance companies accounting for
almost 70 percent of all deals.
Activity in Japan was subdued with total transaction volume sliding by 80 percent quarter-on-quarter. However to a certain extent this was attributable to the US$1.2bn sale of the AIG Building in June, which inflated total transaction volume within the 2Q.
Despite sentiment being cautiously optimistic, few large-scale transactions were witnessed, and only four major transactions above JPY 5bn were concluded. Non-Japanese Asian investors, particularly those from Hong Kong and Singapore, demonstrated an appetite for multi-family residential properties in Tokyo’s core residential districts, but most overseas investors continued to adopt a wait-and-see approach.
Transaction volume in Korea grew substantially to US$1.2bn during the 3Q, thanks largely to the six major office deals that were closed during the quarter. Local buyers and domestic real estate funds, supported by the availability of credit from local banks, dominated transaction activity. Some overseas investors re-entered the market but foreign activity remained low overall.
In Singapore, the number of transactions above S$15m (approx. US$10m) continued to edge up quarter-on-quarter, with total volume reaching over US$900m, or 10 percent of the total volume in Asia. Five major office transactions were concluded, with the acquisition of six floors in Prudential Tower for US$750m marking the largest transaction in the office sector.
Overall, the 3Q saw foreign investors become more active in the region, with inter-regional cross border investment jumping from a low of 6 percent and 9 percent of total volume in the first and 2Q respectively, to a high of 21 percent, a trend that reflected the slightly diminished pressure of external financing constraints and an improvement in liquidity from a global perspective.
“Investors in Asia have become more optimistic over the past few months. Cash rich domestic buyers continue to underpin investment activity, while foreign investors are slowly emerging from a quiet first half year to look for medium- to long-term investments.
“However, it should be noted that several Asian governments including those in Hong Kong, Singapore, China and South Korea have voiced concern that the real estate sector is rebounding too strongly, and have taken steps to limit risks associated with potential over investment. The measures are likely to cool down the market but are expected to have only a limited effect on pricing,” said Andrew Ness, executive director of CBRE Research Asia.
The upturn in investment activity witnessed during the third quarter suggests many investors believe that the Asian investment property market may have reached the end of the down cycle, and in some cases moved past that point. However, lenders are likely to remain cautious and will continue to insist on lower loan-to-value ratios for property financing, particularly for large scale acquisitions. This is likely to act as a restraining factor with respect to both investment activity and volume, over the short-term.
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