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Five charts mapping Asia’s property scene

While Vietnam and India are growing in popularity, Singapore has shot to third position

2018

Excess liquidity has had the most influence on the Asian real estate market with local sovereign and institutional funds lapping up assets regionally and globally, a real estate forecast by PwC and the Urban Land Institute has found.

According to the survey - Emerging Trends in Real Estate Asia Pacific 2018 - there has been an emergence of interest in new markets and asset classes such as data centres, affordable housing projects, build-to-rent, co-working facilities, and student and senior housing.

The $45.2 billion capital outflow from Asian markets into global property assets nearly doubled from a year ago, noted KK So, Asia Pacific real estate tax leader at PwC.

In the high-net-worth space, the survey found increased activity from family funds.

‘They are going into niche asset classes. You’re seeing a lot [of family funds] going into hospitality,’ Colin Galloway, the principal author, said at a media briefing in Singapore.

‘Boutique hotels in Thailand, Australia and as far as the Maldives. They tend to try not to compete with bigger private equity funds.’

While Ho Chi Minh, Auckland and Tokyo were the top three investment destinations in the hotel sector, Seoul, Beijing and China’s second-tier cities were the least popular.

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Countries

In the Asian markets, Indonesia and the Philippines faded away in popularity amongst investors in 2017, replaced by Vietnam and India.

The Australian cities of Sydney and Melbourne, however, continue to attract investors as mature markets with high-quality core assets and relatively good yields.

Singapore has shot to third position from next-to-market bottom last year as a result of investors betting that the market has bottomed after several years of weakness.

Ho Chi Minh City was popular among respondents, who believe it is the ‘new China’. Vietnam is seeing large regional developers and an increasing number of private equity funds betting it will offer a repeat of the mainland China experience in terms of property price inflation.

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Office

Singapore has shot up the office rankings this year as investors anticipate a rebound after rentals declining by 10% over the past two years.

‘You’ve also seen business confidence ticking up somewhat and the supply glut over the last year or two showing signs that next year there’s not too much property coming onto the market,’ Galloway said.

However, that wasn’t the general censuses shared by all investors. Some believe that the Singaporean economy is still soft and retrenchment by European banks has left many office spaces vacant.

Shanghai has also seen interest as investors re-deploy capital earlier earmarked for overseas investments into domestic assets due to capital controls.

Tokyo’s office space has garnered interest from yield-driven institutional and private investors. There was less activity by rental growth capital this year.

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Residential

Commercial spaces in Vietnam are limited, and investors are eyeing the residential sector, where demand is strong and growing, the report said. Some investors are selling sites for 50-60% above the net asset value.

Singapore’s residential story mirrors the office space narrative, helped by cooling measures by the government.

In Tokyo, residential assets are being seen as more stable sources of return than office spaces.

Investor sentiment in residential areas in Asia varies according to the impact of government efforts to curtail surging home prices, the survey found.

‘Another theme is the rise of the build-to-rent properties, which have been popular in Japan. ‘They are likely to emerge as a long-term theme,’ Galloway said.

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Retail

The challenge posed by e-commerce continues to grow and retail featured last in the survey’s rankings for commercial property prospects as a result.

The malls that have more food and beverage outlets likely have an edge, Galloway added.

In terms of cities, Ho Chi Minh once again topped rankings due to expected consumer demand. However, Vietnam in general has an oversupply of retail assets, with Ho Chi Minh doubling the floor area of shopping space in 2015-16, according to CBRE.

A pipeline of 500,000 square meters is expected in the next three years, so investors will have to stay cautious.

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Industrial

Industrial and distribution assets were the most appealing to the surveyed investors among all commercial property types, with most activity occurring in China, Australia and Tokyo.

JLL data shows that transactions in Asia Pacific hit $61 billion in the first half of 2017, up from $54 billion in the same period in 2016.

There’s currently structural undersupply in the region as e-commerce sales continue to grow, sparking a need for warehouses to store goods.

As the biggest market for e-commerce in the region, China has fared well. Shenzhen retained its ranking from last year.

However, developers have pointed to the difficulties of building China-based platforms due to the lack of freehold property rights.

The introduction of a new tax structure in India has removed inefficiencies and opened up the logistics sector, ‘unleashing a torrent of incoming investment, the report noted.

‘With domestic warehousing stock in India currently equivalent to around 1.5% of what is available in China, and cap rates currently in the area of 9-10%, the investment landscape has something of a gold-rush feel to it,’ it said.

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