Shanghai, Hong Kong, Singapore, Tokyo and Beijing are the Top Five Cities for Investment Focus

2012-12-13

International property consultant, Colliers International’s Global Investor Sentiment Survey 2012 revealed that property investors in Asia are generally positive in their outlook on the real estate market for 2013 – with 70 per cent of the respondents in Asia expressing their likelihood to expand their property portfolio and increase their level of investment. 

Conducted from 24 September 2012 to 5 October 2012, the Colliers International Global Investor Sentiment Survey 2012 aims to better understand the attitudes and outlook of property investors at a global and regional level for the next 12 months.  A total of 434 major institutional and private investors around the world participated in the survey. 

On a global scale, the survey discloses a noticeable trend that real estate investors worldwide are becoming more critical when selecting their investment locations.  Investors in almost all regions indicated that they are more likely to look at home locations first, and for investors who are looking for international opportunities, they are specific in their considerations on the individual markets and sectors. 

The primary obstacles to expansion plans include a lack of quality stock and the availability of finance. Meanwhile, risk aversion, income security and wealth preservation remain a key part of the investment strategy for many funds, and particularly, high net worth individuals and private buyers. 

Investment Sentiments in Asia
It is encouraging to note that investors in Asia remain keen on portfolio expansion, with 70 per cent of them expressing their likelihood to expand their property portfolio and increase their level of investment. 

However, the major concerns raised by the respondents are the difficulty in raising new equity, a lack of supply of properties for sale and the economic uncertainty. 

Mr Piers Brunner (潘秉兆), Chief Executive Officer | Asia of Colliers International, says, “With growing inflationary pressure amid the third round of quantitative easing (QE3), investors realise that their cash is steadily losing value.  The anticipated increase of market liquidity implies an easier access to credit in 2013.  Coupled with a clearer direction of government policies, with most governmental elections of various countries completed this year, investors are, hence, spurred to execute their investment plans.” 

It is noteworthy that some 41 per cent of the respondents in Asia are aiming for an internal rate of returns (IRR) of more than 20 per cent.

This is more aggressive when compared to a 15-20 per cent IRR targeted by the majority of the investors in Latin America, Middle East and North Africa, a 10-15 per cent IRR in Australia/New Zealand, and less than 10 per cent IRR in the United States, Canada and Western Europe.

According to the survey, 79 per cent of the respondents in Asia indicated their preference for the Asian region as their key investment focus in the next 12 months.  The top five cities in Asia favoured by the respondents are Shanghai, Hong Kong, Singapore, Tokyo and Beijing. 

Meanwhile, investors view property market fundamentals in each market as the most critical factor in the course of making investment decisions in Asia over the next six months. 

Mr Dennis Yeo(杨焕杰), Managing Director and Investment Services | Asia of Colliers International, says, “For Singapore, the cyclical characteristics of the real estate market here acts as a magnet to investors looking for flight to quality. 

Currently, and for the better half of 2012, there is a price gap between the buyers and sellers.  The tipping point for more transactions may be towards the later part of 2013 and 2014, when the economy continues to slow, demand weakens and supply comes on stream with completion of sites that were released in 2011 and 2012.”

As an indicator of prospective investment flow over the next six months, office developments in CBD/urban locations (25 per cent) are the top pick among investors in Asia, followed by opportunistic investments (17 per cent).  15 per cent of the respondents reported a focus on industrial/logistics opportunities. 

60 per cent of the respondents in Asia indicated that they are likely to use debt as leverage in future investment decisions.  Compared to last year in which a high 77 per cent of the respondents reported an increase in the cost of debt, only 34 per cent of the respondents this year stated that the cost of debt has increased and 42 per cent stated that the cost of debt has not changed.

Outlook
68 per cent of the investors in Asia believed that market conditions in Asia would improve in the next 5 years.  

Looking on a nearer term, in general, 2013 will be a year of continued recovery, with investment volumes showing modest growth worldwide.   Investors in Asia remain positive on the market outlook for 2013, as real estate will continue to be a good hedge against inflation.  Access to finance is also expected to be easier in 2013, as the supply of credit is readily available from most Asian banks. 

Nonetheless, after the release of QE3, economic developments and property fundamentals in the domestic market will remain the main concerns for real estate investment among investors. 

Highlights of investors’ sentiments in other regions:

  • Investors in Australia/New Zealand are some of the most risk averse in the world, with 70 per cent of them indicating that they are unlikely or not at all likely to take risks to achieve superior returns over the next six months.  Nonetheless, 66 per cent of them believe that it is a good time now to undertake major investments in commercial property. 
  • 78 per cent of the investors in Canada are planning to expand their portfolio in the near term, although they agree that while good investments still exist, they are getting more difficult to find.  This suggests that investors are starting to look at secondary opportunities. 
  • In Europe, the safe havens which have attracted substantial international capital include London, Paris, and the major regional cities of Germany.  Meanwhile, not only is London capturing pension fund investments from the United States, Canada and Asia, it is also proving undeniably attractive to private buyers from Asia and the Middle East for whom wealth preservation is paramount. 
  • Investors in Latin America are optimistic about the future, with a significant 87.5 per cent of the respondents expecting a market improvement within the next 5 years.
  • 74 per cent of the investors in the United States planned to expand their property investments in the next six months, with 58 per cent of the respondents reporting that they are either likely or highly likely to take on more risk to achieve the targeted returns.