15 December 2014
Asia’s consistent economic growth should lead to sustained demand for institutional-grade assets in the region in 2015, according to Colliers International’s 2015 Property Outlook, across the full spectrum of asset classes. But given the compressed yields and lack of available stock, capital is also likely to continue to head out of the region in search of opportunity.
The difference for 2015 from recent years is that the inbound volume of capital will be much more significant, as institutional investors seek to rebalance their allocations. They are currently under-invested in Asia, requiring them to increase their property positions in the region.
It is possible that they will benefit from a relaxation of some of the purchasing curbs that have been installed in several markets over the past few years.
“It is likely that some Asian governments will relax their property cooling measures, particularly given the softening of residential prices and slowing economic growth,” Terence Tang, Managing Director of Capital Markets, Asia from Colliers International, said. “We are already witnessing some longer term investors who are now actively seeking for realistically priced deals to take advantage of the slow market, in view of the potentially lower exit risk.”
Vendors are becoming increasingly realistic in their asking prices, which should stimulate an increase in transactions. Mainland investors are also likely to continue their buying spree, both within Asia and outside the region.
Chinese developers and insurance companies will likely build on the US$9.5 billion in outbound investment from China in 2014, which showed an increase of 7 percent. Meanwhile, inbound investment into China is expected to fall further from US$23 billion, which was already down 27 percent over the previous year.
The main targets for Chinese investors have been “gateway” cities such as New York, London, Sydney and San Francisco. But they are broadening their horizons and looking at secondary cities such as Boston, Frankfurt and Melbourne.
“The type of investor looking for international deals is also increasingly varied, with new players entering the market,” Lina Wong, Managing Director with Colliers Shanghai, said. “We predict that over the next few years, investors will expand their reach into a broader range of asset types, as well as increasing the size of deals.”
Mainland investors are also expected to increase their footprint in Hong Kong. “The Hong Kong market will remain active in 2015, with buyers competing for value-added properties,” Antonio Wu, Deputy Managing Director of Colliers Hong Kong, said. “Chinese investors are now the biggest group of foreign buyers for property around the globe, and their offshore buying spree is likely to intensify."
The Singapore office market will continue to attract investors in 2015, Colliers predicts, and an undersupply of new office space will support healthy occupancy rates as well as rising rents and prices.
Residential real estate has been having a tough time in the Lion City, and both transaction numbers and prices have been falling for some time.
Investors “will be keeping an eye out for good-value opportunities, especially in the luxury segment,” Tang said. The slowdown in the market has encouraged sellers to reduce their asking prices, which may generate more momentum in the year ahead compared to what has certainly been a lacklustre 2014.
There should also be some interesting development sites coming onto the market in Singapore in 2015, and capital-markets activity should then increase. It is likely there will be more international investors, particularly private-equity groups from North Asia and European pension funds.
The likelihood of an interest-rate hike in 2015 will give some investors pause for thought. But Colliers does not foresee rates rising either soon or fast. As a result, the overall environment for borrowing for real-estate purchases remains near a record-low, giving continued impetus to capital markets around Asia.
For more results from Colliers International’s Asia Property Outlook 2015 report, please visit www.colliers.com/en-gb/asia/realestate2015 .