Hong Kong/Singapore (Reuters): Asian governments have imposed a raft of measures aimed at preventing their property markets from taking off too quickly, but the region still offers investors some of the most prospective real estate globally.
House prices in Asia have doubled in many cases in the past two years. So after various measures to take the heat out of markets, especially in China and Hong Kong, it is almost inevitable that returns will cool next year.
But beyond that, price growth should pick up once again off the back of Asia’s traditional attractions for real estate investors; enviable economic growth, a steady rise in currency values and importantly, increasing urbanisation in several countries.
Analysts see prices rising again between 5 percent and 10 percent in 2012.
Still, there is no sign yet of a slowdown in capital coming into the Asia property markets. Indeed, investment is speeding up, figures from property services firm CB Richard Ellis (CBRE) show.
That in part reflects the surge in capital flooding into the region as investors turn their backs on the uncertainties of developed countries to lock in gains from fast-growing Asia.
In the first three quarters of 2010, direct real estate investments in Asia totalled $46 billion, double the amount in the same period in 2009, CBRE, which has an extensive network in the region, said.
In the third quarter alone, investment jumped 53 percent from the second quarter, a stark contrast to Europe, where investment fell 6 percent. About 17 percent of Asia’s total investment in the third quarter came from outside the domestic markets, up from 14 percent in the previous quarter.
CBRE’s Executive Director Andrew Ness reckons full-year investments will exceed $60 billion, up sharply from $37.8 billion last year.
|FT Key Take
|*In the first three quarters of 2010, direct real estate investments in Asia totalled $46 billion, double the amount in the same period in 2009, CBRE, which has an extensive network in the region, said.
“It’s still a very much Asian-led rebound. The Americans and Europeans are beginning to come in and enquiring more,” Ness said.
However, with regulators increasingly clamping down on property markets to prevent bubbles forming, such as with tighter lending requirements for property purchases, the 2011 investment climate looks less certain.
Reflecting this, property stocks in Asia have come off their peaks and Ness declined to forecast any investment flows for next year.
But over the longer term, Asian markets offer less uncertainty than the United States or Europe, which will support the market, many analysts say.
U.S. home prices, which have plunged by a third since their 2006 peak, will only inch up in 2011 due to a stream of foreclosures and high joblessness, a Reuters poll shows.
House prices in Britain will fall, the Reuters poll shows. [ID:nSLAIME6IM] [ID:nSLAIME6IN]
Beyond next year, the economies of developed nations are expected to grow only sluggishly in coming years as they deal with the heavy debt loads built up during the financial crisis. So even with tightening regulations, Asia offers brighter prospects over a three to five year horizon, some investors say.
“We tend to still like residential as an asset class, it’s just a matter of time,” said an industry source who invests in property in Asia.
“We’re looking at a lot of deals and we’re deciding that now it’s not the right time. We may monitor the situation for the next three to six months,” he said, declining to be identified as he was not authorised to speak to the media.
One investor looking to lock into Asia’s relatively brighter prospects is British property firm Grosvenor , which manages the estate of the Duke of Westminster.
“We’re gradually putting more capital into the region,” said the firm’s chief executive, Mark Preston. “Because of the QE, we (the western world) have got a lot of money looking to find a home in safe places and property offers that tangible asset at a time of uncertainty.”
Privately held Grosvenor plans to increase Asia’s contribution to its total net asset value to 10 percent in the next three years from 6-7 percent now.
One of the biggest long-term Asian attractions for property investors is the rapid pace of urbanisation in many countries, which is also a significant contributor to economic growth.
In China, for example, the urban population is 46.6 percent of the total 1.3 billion population, but is expected to cross the 50 percent mark in the next few years as between 13 million and 19 million people migrate to cities each year.
Several countries have a growing workforce. In India, for example, the workforce is expected to expand by 270 million people in the next 20 years. China’s working population is due to peak in 2015.
Most Asian currencies have risen steadily against the dollar and that is expected to continue next year, offering some comfort over exchange rate risk. The Chinese yuan , Singapore dollar and Malaysian ringgit are seen rising 2 percent to 4 percent next year, Reuters polls show.
Property is also a favourite of domestic investors and culturally most Asians prefer to own, rather than rent, their homes, making it easier for foreign investors to exit a portfolio if needed. “Money in the banking system is earning very low policy returns so it’s going into property as there’s a lack of other good investment instruments to park your money in,” said Donald Han, vice chairman at global property services company Cushman and Wakefield.
“A lot of the markets – China, Hong Kong, Taiwan, Singapore – are predominantly run by the Chinese investors and in their DNA, it’s all about real estate,” Han said.