Real estate markets in the Asia Pacific region are holding up “surprisingly well” in the aftermath of the global recession compared to markets in the United States and Europe, according to the Emerging Trends in Real Estate Asia Pacific 2010 report, released by the Urban Land Institute (ULI) and PricewaterhouseCoopers LLP (PwC).
Emerging Trends, released at a series of events in Asia over the last several days, provides an outlook on Asia Pacific real estate investment and development trends, real estate finance and capital markets, and trends by property sector and metropolitan area. It is the fourth Asia Pacific edition of the highly regarded Emerging Trends in Real Estate® annual investor survey. The report is based on the opinions of more than 270 internationally renowned real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants.
Since the onset of the global economic meltdown, asset markets in the Asia Pacific region have fared better than those in Europe and the United States, the report states. While both pricing and rentals in the region fell steeply in 2008 and early 2009 in step with those in the West, markets across the Asia Pacific region have been lifted in the second half of the year by the remarkable resilience of the Chinese economy, which has been buoyed by a series of fiscal and monetary stimulus measures.
As a result, many Asian markets have begun to flash positive signals toward the end of 2009. Transaction volumes have rebounded, albeit from a very low base and led overwhelmingly by China.
“Pricing has improved across the region. While the upturn has been modest in most cases, moves have been substantial in some asset classes and geographies, especially in China,” said KK So, PwC Real Estate Tax Leader for the Asia Pacific region based in Hong Kong.
In spite of a stalemate between buyers and sellers in some markets, and significant rent fluctuations, Asia has in general experienced both an increase in transaction volume and higher property prices – with a large part of the upturn occurring in China, the report notes. Unlike the prevalence of distressed sales occurring in the U.S. and Europe, distressed sales in Asia have been relatively minimal. Emerging Trends attributes this to several factors, including:
- A relative abundance of liquidity;
- Relatively low loan-to-value ratios, leaving borrowers less vulnerable to loan servicing problems when prices declined;
- The fact that Asian banks remain well capitalized, having experienced few major losses from derivative investments;
- The ability of many large investment institutions to recapitalize via the capital markets, (particularly in Australia and Singapore) allowing them to pay down debt; and
- Business sentiment remaining sanguine.
Despite the newly bullish atmosphere, the rebounds in most Asia Pacific markets (China excepted) seem tentative and fragile.
“For now, Asian real estate seems to be weathering the storm much better than its counterparts in the West,” Mr. So said. “Whilst investors in the Asia Pacific region appear cautiously optimistic, it remains to be seen whether such confidence is warranted, given the precarious sentiment in the West,” Mr. So added. Although Asia Pacific governments will probably be able to sustain high rates of liquidity for the foreseeable future, their near term prospects are probably tied to developments in the West and in particular the United States, where deleveraging is far from over.
“Although Asian real estate markets never reached the level of stagnation seen in the United States and Europe, and the ongoing activity there is encouraging, it is important to keep the outlook for growth in perspective,” said ULI Chief Executive Officer Patrick L. Phillips.
“The idea that the recession is likely over gives rise to the widespread notion that global economies will now revert gradually to the same trajectories as in the past, which is normally what happens when recessions end. This is particularly true of Asia, which has avoided the worst of the fallout. This time, however, the aftermath is likely to be different because the imbalances that led to the global downturn remain embedded in the system and cannot be quickly eliminated. Moreover, with spending by Western consumers no longer acting as the primary engine of global economic growth, a new driver is needed to boost the world’s economy, and, in turn, the global real estate industry,” Mr. Phillips added.
Markets to Watch
The predictions Emerging Trends makes for Asia are based heavily on projections for strong activity in China and India. “I think there are buying opportunities for some time,” states one investor. This is reflected in the choices made by survey participants for real estate investment and development:
Shanghai, Hong Kong and Beijing are the top three real estate investment prospects;
Shanghai, Mumbai, and New Delhi are first, second, and fourth, respectively, for real estate development opportunities. (Ho Chi Minh City ranked third for development prospects.)
Mumbai – Mumbai ranked second only to Shanghai as the most promising development market. Development has increased there in all property sectors, but construction of affordable housing is particularly strong, as the government continues to lower mortgages and the middle class is being offered “good-quality, honest accommodations.”