Asians unseat foreigners as Asia Pacific's dominant property investors

Singapore among countries with most active market as its new tourist attractions likely to energise demand.

Asian investors are investing more capital in property markets abroad while Asia’s domestic and intra-regional investors have also displaced foreigners as the dominant investors in the Asia Pacific real estate market, according to two reports released on Thursday by RREEF.

RREEF, the Global Real Estate Investment Management Division of Deutsche Bank, on Thursday published The Asia Pacific Property Cycle Monitor and the Japan Real Estate Quarterly, which examines trends in the office, industrial and retail property markets across the region.

According to the report’s findings, a swift economic start in 2010 added buoyancy to Asia’s office markets, allowing volatile cycles like those in Hong Kong, Singapore, Shanghai, and Beijing to shift quickly into recovery. Meanwhile, less volatile markets like Seoul, Sydney, and Melbourne – which showed limited construction and only modest demand disruption during the downturn - have also moved into recovery.

“This contrasts with Tokyo and other Japanese cities where rents continue to fall,” said RREEF's Head of Japan Research, Koichuro Obu. “Japan remains the region’s only office market experiencing distressed investment transactions.”

"The average office vacancy rate in Central Tokyo has been rising for 30 consecutive months and it went up to 9.1 per cent in June 2010, breaking all time worst records for five consecutive months."

However positive signs of a recovery in Japan are beginning to emerge. "New lending for real estate increased 7.6 per cent in the quarter from the same period in the previous year" said Mr Obu. "This is the first increase in eight quarters according to the Bank of Japan."

In India, despite otherwise dynamic economic growth, the extensive construction pipeline has delayed recovery prospects for at least another year in major cities such as Mumbai, and perhaps even longer in Delhi, Bangalore, and Chennai, said Dr YenKeng Tan, Head of RREEF Research & Strategy, Asia Pacific. Elsewhere in the Asia Pacific region, office fundamentals in Taipei, Kuala Lumpur, Manila and Bangkok point to delayed recoveries with modest to moderate rental growth.

Performance continues to improve across most of Asia’s retail markets, especially in Hong Kong and Shanghai where the retail cycle turned quickly post-crisis. A burst of new rental growth in these markets seems likely this year, said Dr Tan.

The Sydney, Melbourne, Beijing, and Seoul retail markets also eased during the last property cycle, but showed less volatility than originally feared. “Singapore remains a wildcard with good upside potential,” said Dr Tan. “While Singapore‘s retail market was delivered a blow in the downturn, its supply pipeline is limited and new tourist attractions appear increasingly likely to energise demand.”

Substantial oversupply in retail markets like Mumbai and Delhi, stagnant demand in Tokyo, and political uncertainty in markets like Bangkok will delay recoveries in those markets, Dr Tan said. Looking ahead he said China’s 12th Five-Year Plan, which will cover the years 2011-2016, would steer the country toward a more consumption-oriented economy, which could provide a substantial boost to the region’s retail property demand in the coming years.

On the industrial property front, fundamentals stabilised in early 2010 with rents down significantly from their peaks, especially in gateway markets like Singapore, Dr Tan said.

“The first signs of the regional industrial market’s revival began to appear in the first half of 2010 as tenant demand picked up in the major markets of China and Australia,” Dr Tan said. “However, softer fundamentals still linger in the industrial markets of Bangkok, Kuala Lumpur, and Tokyo.”

Dr Tan said the Asia property cycle remained intrinsically linked to the regional economy. On that note, he said Asia ex-Japan would continue to pull the global economy forward with improving consumer and business sentiment underpinning Deutsche Bank‘s robust mid-year forecast of 8.5 per cent growth in 2010, up from 7.7% at the beginning of the year. Even with China and India excluded, emerging Asian countries remain on track for a brisk 6.3 per cent expansion this year.

“The post-crisis economic landscape is repositioning Asia as a significant source for capital to be invested in property markets abroad, and we will start to see Asia being a major exporter of capital into real estate alongside its historical position as an importer of capital into real estate,” Dr Tan said.