China tops property investment in Asia Pacific

China is the most favoured country for property investors in the Asia Pacific region with US$5 billion worth of investment transacted in the second quarter of 2011while Australia emerges as top favourite with inter regional investors, a new report shows.

Sound domestic demand for real estate by occupiers and investors, combined with relatively strong corporate/household sector and high savings rates is expected to drive continued short term real estate markets’ performance for the remainder of the year, according to Jones Lang LaSalle’s latest Asia Pacific Capital Markets Bulletin.

It shows that investment volumes are up 11.1% year on year at US$19 billion with domestic deals chalking up US$11.2 billion alone. Cross border Asia money accounted for US$4.5 billion while inter regional funds made up the total at 3.3 billion. Total investment volume is still targeted to reach US$100 billion by the end of 011.

‘Investors who are interested in diversification of their portfolios are likely to be attracted to real estate in the region, based on cash flow from rent with the potential to keep pace with inflation. We have seen a series of institutional investors increase their allocations to real estate, sustaining market volumes,’ said Stuart Crow, head of Asia Pacific Capital Markets at Jones Lang LaSalle.

Australia emerged as a top favourite for inter regional investors, as one of two AAA-rated countries in Asia Pacific, and drawn by good fundamentals of transparent real estate markets and economic links to the rest of Asia. Several sizeable deals with buyers from Canada, Switzerland, US and global funds pushed the total inter-regional inflow to Australia to US$1.2 billion, a 442.1% increase year on year.

‘Our team advised on the sale of 50% of Northland Shopping Centre in Melbourne which was sold to the Canada Pension Plan Investment Board for USD 484 million at a yield of 6.3% in May this year. This illustrated the level of interest by international investors in Australia, attracted by our strong growth prospects amidst a global slowdown,’ said John Talbot, head of Australia Capital Markets for Jones Lang LaSalle.

China recorded the largest volume of transactions in the region in the second quarter at a shade over US$5 billion. Historically Japan has usually been the biggest market, but for the first time China exceeded Japan in the fourth quarter of 2010. In the first quarter of 2011 Japan returned to the top spot as the year end pattern in Japan boosted volumes but China is again the biggest market for real estate investments.

In the long term, China’s role as the world’s second largest economy is likely to see the country become the biggest real estate investment market. Notwithstanding a swift and total recovery of the real estate markets in Japan, the rate of new building development in China, the continued rate of absorption of prime Grade A stock in Tiers I and II cities and the development of property rights to allow more landlord and tenant relationships, adds up to China destined to become the biggest investment market in Asia Pacific.

‘In the long term, occupier demand for Asia Pacific real estate will endure based on population growth driving economic growth and urbanization. This provides an attractive stable income stream from rent for investors,’ said Megan Walters, head of Capital Markets Research in Asia Pacific for Jones Lang LaSalle.