City&Country: Offshore-- Investors drawn to Southeast Asia

Why invest in real estate? For sure, there are good — even great — times. However, there are cyclical downturns as well and, as at least one authority — the Australian Securities and Investment Commission — advises on property investment, if you can’t sleep at night worrying about it, then perhaps you should invest in an asset with less risk.

And yet, so many of us love it — especially when we can sniff a bargain. While a groundswell of opinion suggests that many markets globally have a way to go before any significant upturn, Southeast Asia is cited as one of the bright spots.

Jones Lang LaSalle’s (JLL) latest Asia Pacific Property Digest highlights continuing improvements in market fundamentals across the region, underpinned by solid economic growth and high confidence levels.

“Take-up of space is strengthening and in some markets corporate occupiers are finding that space is in short supply,” says Jane Murray, head of Asia-Pacific research. “As a consequence, the leasing market is turning more in favour of landlords and more markets have moved to the upturn phase of the rental cycle. Capital values started to recover earlier than rentals and have now bottomed in most markets. Investment activity is strengthening, and we expect volumes to pick up further.”

JLL’s data points to a marked upswing in Hong Kong, Singapore and mainland China’s first-tier cities, especially in the luxury residential sector. It notes that intra-Asian and domestic investors continue to dominate purchasers across the region, and that improving market fundamentals are expected to bring even more buyers out of the woodwork.

An Emerging Trends in Real Estate Asia-Pacific report by accounting firm PricewaterhouseCoopers (PwC) and the Urban Land Institute (ULI), a global non-profit education and research institute, announces that the “cloud has been lifted” from Asia-Pacific markets, reflected by buoyant real estate activity.

The region’s property markets, it found, “are strong enough to grow into the high expectations current pricing trends imply”.

But where best to put your money? The PwC/ULI report puts Singapore as the region’s top real estate investment destination this year, up from fourth place last year.

“This growth is mainly attributed to foreign awareness of the prospects that Singapore has to offer, and its healthy rebound from the global financial crisis,” says David Sandison, tax partner of PwC Singapore. “But domestic capital involvement seems to have increased as well.”

He adds that the Singapore government’s long-term, sustainable view of the property market, its political stability and cooling measures to curb speculation are “altogether a potent combination”. Shanghai, Mumbai, Hong Kong and New Delhi are named among the region’s top markets.

There should be buyers aplenty. A 2010 survey by Colliers International showed that 73% of Asian respondents expect to expand their property portfolio this year — 91% of them buying in the domestic region.

Piers Brunner, CEO, Asia, Colliers International, says domestic and international investors “are particularly active” in the real estate markets of Asia, where economic prospects look stronger than the Western world. “Improving economic conditions have brought an end to declining real estate prices and rents in most Asian countries,” he says. “The brightest spot is China where real estate prices have picked up rapidly.”

Colliers tips Singapore and Shanghai as the hottest Asian markets this year. Singapore is picked for its strong office occupancy demand attributed primarily to the financial sector. Brunner says: “In terms of real estate cycle, the current price level for offices becomes attractive for investors after [being] seriously depressed by the current supply cycle. Shanghai, being one of the fastest-growth cities in the world with GDP expected to exceed 10% over the next few years, is a hub for local companies and multinational corporations.”

Brunner cites Mumbai and Tokyo as the “sleeper” markets this year, where rentals are at their cyclical troughs, but growth of capital values will accelerate when occupancy demand strengthens.
The latest Global Property Guide covers other markets in the region. It rates Taiwan as an “overvalued market”, where house prices rose 19.97% (18.46% in real terms) during 1Q2010, while yields on Taiwan apartments are “among the lowest in the world”.

Indonesia “remains sluggish”, declining in real terms for the past two years. Makassar led among the regions, with prices up 5.10% over the year to 2Q2010 — reduced to 0.70% in inflation-adjusted terms, according to its data.

Vietnam’s real estate prices are “on the rise” according to the guide, but the market remains uncertain.

It quotes a survey by Cushman and Wakefield Vietnam claiming only 14% of the total supply of luxury apartments in Ho Chi Minh City was sold in the first eight months of last year.

Cambodia offers potentially attractive rental yields, especially in Phnom Penh — but its land values fell by up to 15% year-on-year last year, according to the National Valuers Association of Cambodia.

Although Thailand’s economy expanded by an average 10.6% y-o-y in the first half of 2010, expecting overall GDP growth of 6% for 2010 and 5% for this year, the Global Property Guide found that house prices fell 10.25% in the third quarter.

Matthew Montagu-Pollock, the guide’s publisher, finds this surprising after the 11.65% rise in the second quarter. He notes Thailand’s political environment has improved, but remains volatile with “significant uncertainty”.

In the Philippines, there is still “some overhang” from political uncertainty, despite a strong economy, he says.  A “possible positive” is the landslide election victory of Benigno Aquino on his anti-corruption platform.

Malaysia is “stable as always”. Montagu-Pollock says Malaysia has the most stable house prices in the world, adding, “I wish someone would explain [its] secret”.

But for anyone considering investing in property this year, Montagu-Pollock urges paying attention to “round-trip costs” — that is, the cost of buying and selling — which can vary in different markets. In places such as Indonesia or the Philippines, that could be as much as 25% for foreign owners — a reality that should be factored into any purchasing decision, he says. — SCMP

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 843, Jan 31-Feb 6, 2011