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Colliers: Act before the market takes off again

KUALA LUMPUR: The Asia Pacific real estate investment market continues to contract further in the face of global financial turmoil, says Colliers International.

In the quarterly update of the Asia Pacific real estate investment market, it reported total value of investment sales transactions in Greater China fell by 67% and South Asia plunged 84% in 1Q 2009 compared with 3Q 2008.

The value of sales transactions in the region's industrial property market sales saw the most severe contraction, dropping 84% between 3Q 2008 and 1Q 2009.

Colliers said the real estate market environment will continue to be challenging throughout 2009 due to uncertain occupational demand, selective lending by banks and bid-offer spread remaining wide,.

Piers Brunner, Colliers International Asia chief operating officer however expects the market to improve when banks gradually strengthen their capital structure and become more proactive in offering loans to the real estate sector.

"Therefore, the region's real estate investment yields in the coming quarters of 2009 are expected to edge upwards but at a slower pace than in 4Q 2008 and 1Q 2009.  Given the projection that economic recovery may be in sight in 2010, it is now the time for investors to identify their targets, take advantage of current price weakness and act before the market takes off again," said Brunner.

Institutions and real estate investment funds, the typical buyer group for sizeable developments, have been sitting on the sidelines, or biding their time for better market entry points over the coming months.

A majority of real estate buyers have held back from entering the market, hindered by the difficulties of obtaining sufficient financing from banks in the private sector.

Simon Loh, Colliers Director of Research & Advisory said: "Despite a general reduction in interest rates in 1Q 2009, risk premiums expanded as investors perceived a rise in liquidity risk and anticipated a further consolidation of the global economy. As such, real estate investment yields softened further by 25-75 basis points (bps) in 1Q 2009." 

Despite a strong recovery of local stock market prices, the yield in the overall investment sentiment in Hong Kong remained cautious in 1Q 2009, with the bid-offer spread remaining wide.

As explained by Antonio Wu, Regional Director, Asia Investment Sales, and Head of Hong Kong Investment & Retail Services, the yield spread between real estate investment yields and banks' lending rates continues to expand as investors have factored in a thick risk premium in their bids.

There is, however, a degree of optimism as the availability of bank financing is expected to improve as local banks have become more active in offering financing packages recently.

“With prices coming off 45% from the peak, prime offices in the CBD look attractive to long-term investors. Retail properties in prime locations are also expected to draw investors' attention considering the buoyant retail sales of Hong Kong which is underpinned by visitors, especially those coming from mainland China," says Wu.

Lina Wong, Colliers East and Southwest China managing director, said the relaxation of investment regulations and the lowering of equity ratios for development projects act as positive stimulation to the real estate market in China.

She added  Shanghai's residential, CBD office and retail property markets are perceived as opportunities for investment as they are supported by resilient end-users' demand, sustained demand by MNCs and sustained growth of retail sales respectively.

Singapore which is experiencing declining property prices and slower investment activity recorded a total investments sales value of S$242.25 million (US$166 million) in 1Q 2009. The amount is only 1.9% of the $12.69 billion investment sales during the peak period of the market in 3Q 2007. 

"Looking ahead, commercial and office buildings in Singapore are worthwhile for investors especially those in the CBD where prices are falling to a realistic level," said Dennis Yeo, Colliers International Singapore managing director.
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