Manila, 11 January 2017 –
In its recent report, Colliers International noted that the economic picture for Asia Pacific looks darker than in recent years, with lower growth, rising interest rates and political upheaval in Europe and the US being causes for concern for real estate investors. No investor likes uncertainty and two unexpected results – the UK voting to leave the European Union and the election of Donald Trump as US president, have caused widespread jitters.
For real estate investors, rising interest rates is a major concern driven by a rise in US Treasuries yields, which increased sharply this in 2016. Terence Tang, managing director, Asia Capital Markets and Investment Services at Colliers International cited interest rates and political developments as the major cause of concern among Asia Pacific real estate investors next year.
HSBC said Indonesia, the Philippines and India are likely to be more shielded from the “Trump effect” given their low debt and low export exposures. In contrast, Malaysia, China, Korea, Taiwan and Thailand should be more affected.
According to Tang, the economic growth in Asia still looked good compared to other regions. GDP growth of more than 6% is expected in both China and India. The Philippines is expecting similar growth, while Indonesia is tipped to rise by just over 5%. Japan’s growth is sluggish at 1% GDP rise predicted next year.
No easy ride ahead for return hunters in Asia
Colliers International sees no easy ride ahead for return hunters is Asia. With plenty of capital, institutional investors will still target the region’s property in 2017. However, the rising interest rates and low economic growth would mean investors will have to work harder to get a viable return. Terence Tang said, “We expect yields to remain pretty flat across most markets in Asia Pacific next year, with upward pressure from rising US interest rates and downward pressure from weight of capital cancelling each other out.”
In most cities, property market growth will come from economic growth, via rent rises. Investors will look to value-added strategies, which are likely to include more ground-up development in emerging markets with better growth prospects and more occupier demand for new stock.
Investors are now targeting lower returns from each risk category than a few years ago: core/core-plus investors are seeking 8%-10% rather than 10%-12%, while opportunistic return targets are closer to 15% than 20%.
Asian property deal volumes fall back to earth after rocketing in 2015
Real Capital Analytics data show property investment deal volumes falling in a number of major markets in 2016. Japan’s volume declined to US$25.0B from US$42.9B in 2015. China transactions fell by as much US$3.6B during the same period, while Australia fell by 40% to US$17.9B. Other markets held broadly steady, while volumes in Singapore increased by 27%. The Philippines also grew significantly to US900M, albeit coming from a low base.
Overall, the relatively low economic growth and rising interest rates will force investors to be more strategic in their investments. It remains to be seen if the numbers will continue to decline in 2017, but with the influx of available capital and resilient economic fundamentals across Asia, growth is not impossible, though the region may be marred by some uncertainties.