Optimistic outlook for Asian real estate investment market, according to analysts

Activity in the Asian real estate investment market continued to gain momentum towards the end of the year, underpinned by the rapid resurgence of capital values for prime investment grade properties, improved business sentiment and strong investor confidence.

The latest analysis from global property consultants CB Richard Ellis sows that Hong Kong was the standout performer, accounting for US$9.3 billion or 28% of the regional total in the second half.

Japan, Singapore and China also enjoyed a strong second half of the year, accounting for a total of US$20 billion of transactions in the period between July and December 2010, 56% of the total regional volume.

However, the fourth quarter saw a slight slowdown in investment activity, with total transaction volume falling slightly to US$16.3 billion compared to the US$18.5 billion recorded in the third quarter.

The Asian real estate investment market nevertheless ended 2010 on a strong note, with total transaction volume reaching US$62 billion, a surge of 59% year on year.

Transaction turnover declined slightly in most locations in the fourth quarter with the exception of China, Malaysia and Singapore, all of which posted positive quarter on quarter increases in transaction volume by increments of 60%, 53% and 31% respectively.

While China’s ongoing measures to curtail the flow of hot money and new restrictions on the ability of foreign investors to acquire residential and commercial properties in China continued to discourage activity from foreign investors, and domestic investors consequently accounted for the bulk of completed transactions.

The report also shows that international institutional investors shifted to other investment markets, with Singapore witnessing a record quarterly investment volume of over US$5billion in the fourth quarter, 27% of the total regional volume for the period.

In Malaysia, the real estate investment market received a boost from Starhill REIT’s acquisition of eight hospitality properties for a total of US$270 million. Total investment turnover in Malaysia excluding site transactions amounted to US$1.1 billion, representing 3% of the regional total.

Taiwan posted a decline in transaction volume with total investment turnover falling 50% year on year or 8% quarter on quarter to US$736 million in the fourth quarter, a trend mainly due to the limited availability of investment stock. The period saw domestic institutional investors looking to place their capital into the real estate market encounter difficulty in locating quality en-bloc commercial assets in which to invest.

High prices demanded by owners of properties in prime locations also contributed to the decline in transaction volume. Local players continued to dominate the market, although enquiries from overseas institutional investors seeking opportunities in Taiwan increased significantly.

South Korea also turned somewhat sluggish during the final quarter of the year. Total investment in the country amounted to US$836 million, a dip of 12% and 58% from the second and third quarter respectively, resulting in an aggregate total for the year of approximately US$4.5 billion, a figure nevertheless still well above the US$2.6 billion recorded in 2009.

Interest among foreign and domestic investors increased in the fourth quarter although most investors were in no great rush to commit to any purchases. Although domestic investors continued to account for the vast majority of transactions, the level of cross border investment continued to pick up in 2010, accounting for US$11 billion of total transaction volume, a huge increase of 96% year on year, but still well down on the 2007 peak of US$27 billion.

Singaporean investors was most active in making cross border acquisitions during the first and second half of 2010, reaching US$2.8 billion and US$1.5 billion, respectively and resulting an aggregate total for the year of approximately US$4.3 billion. Investment by non-Asian international investors also spiked during the year, reaching an estimated US$4 billion, of which European investors were particularly active, reaching US$2.3 billion, a year on year increase of 668%.

Looking ahead, the market outlook remains generally optimistic and further real estate investment and portfolio expansion from Asian pension funds, sovereign wealth funds and REITs across Asia’s mature and emerging markets is expected in 2011. By sector and market, there will be increasing investment demand in Japan and Singapore as rental and capital values for prime assets recover gradually, the report says.

While prime office properties will continue to be the focal point for investors, prime retail assets are expected to attract a higher level of interest from institutional investors on the back of the strong outlook for retail and tourism growth in the region.