2013-11-06

Buying Spree Looks Set to Continue at Home and Abroad

Asian investors are more confident about investing in properties, boosting optimism over the outlook for the region, according to preliminary data released by Colliers International Global Investor Sentiment Survey. A majority of the respondents (62 per cent) believes that property markets across Asia will improve over the next 12 months, reflecting a higher level of confidence than last year when only 38 per cent of Asia respondents expects improvement in the year ahead. 

Mr Simon Lo, Executive Director of Research & Advisory, Asia says, “The survey findings reveal that when Asian property investors make their investment decisions, the most important factor they consider is the economic growth of a region, followed by property fundamentals and sovereign/political risk.”

The survey also indicated that, despite a somewhat-restored confidence, investors are still treading cautiously in the face of possible tightening of the stimulus programme in the U.S. and the slower-than-expected economic growth in Asia. The survey indicated that almost half (48 per cent) of the Asian respondents targeted internal rate of returns (IRRs) at 15-20 per cent, while another significant portion (32 per cent) of the respondents targeted IRRs of over 20 per cent. 

Mr Terence Tang, Managing Director of Capital Markets & Investment Services | Asia at Colliers International says, “In anticipation of an interest hike and increased worries of the U.S. Federal Reserve’s tapering of their Quantitative Easing (QE3) measures, Asian investors have priced greater risk premiums into their search for returns.” 

In terms of location to invest, half of the Asian respondents (50 per cent) primarily invested in their own domestic market, followed by 41 per cent within their region and 9 per cent outside their region. The survey also found that over the next 12 months, 42 per cent of Asian respondents considers their primary focus on China, followed by Singapore (21 per cent), Japan (18 per cent), India (18 per cent), Hong Kong (16 per cent) and South East Asia (13 per cent). 

This time however, Singapore has emerged as the top pick city among Asian investors for the next 12 months, surpassing last year’s leader – Shanghai – that is now ranked third in the latest survey.  Tokyo and Hong Kong are ranked fourth and fifth, respectively, in the respondents’ consideration list, Mumbai is the new joiner taking the second spot among the top destinations where Asian investors are most likely to invest in the year ahead. 

Mr Tang analyses, “The long-term growth and appreciation of Renminbi (RMB) remain China’s appealing factors to investors, while some eye on the opportunities during the current cyclical recovery of the office sector in Singapore. 

Meanwhile, Mumbai jumped up the ladder to be one of the top five favourable locations to invest. The city’s attraction can be attributed to its role as India’s business hub, the consistent and steady growth of the country’s economy and the government’s support for upgrading the local infrastructure to international standards.” 

In terms of property sector, the survey finds that Asian property investors are the most in favour of offices in core locations, followed by residential properties. 

Property Investment Insights for Key Asian Markets: 

Singapore

Ms Tang Wei Leng, Executive Director of Investment Services, Colliers Singapore says, “The Singapore property market is riding high on a wave of foreign interest at present, especially in the hotel, strata office and retail shop sectors. Meanwhile, outbound investment is being driven by a search for yields and diversification, and as an alternative to the highly regulated domestic property market.” 

She continues, “Developers and property investors are focusing on commercial office buildings and residential development opportunities, while individuals and families are looking to acquire apartments in London, Malaysia, Thailand and the Philippines. 

The coming year will see good opportunities to invest in Singapore government land sales, closed-end funds and listed developers. At the same time, investors will need to face the challenges, such as low yields, restrictions on bank financing and the limited number of acquisition opportunities.

China

Outbound Chinese investments have become a hot topic in global property circles lately, especially since the US$725 million purchase of Chase Manhattan Plaza in New York by a Chinese conglomerate. 

“Large Chinese property developers, institutional investors and insurance companies have been leading the way, and we believe that 2014 will see an upturn in Chinese investment in the U.S. and European markets, despite the relatively high prices and risk factors,” says Ms Lina Wong, Colliers International’s Managing Director, East & Southwest China.

She continues, “Besides corporate and institutional investors, more and more individual investors are buying overseas. Despite capital and foreign exchange regulations, they wish to take advantage of the strong currency of RMB and diversify their portfolios. However, outbound Chinese investors still face a number of main challenges, the biggest of which are their unfamiliarity with overseas markets and foreign legal systems.” 

Property investors – especially domestic institutions – are remaining active in all sectors of the domestic market too, according to Ms Wong. 

“The office sector remains highly sought-after, and the number of en bloc office investment opportunities in first-tier cities is now very limited as a result. Decentralised and business park office property in Shanghai and Beijing is likewise set to attract a lot of interest, as well as lower grade premises that can be enhanced and repositioned as short-term opportunities. Prime retail assets in second-tier cities will be hot too, as will retail property on the outskirts of first-tier cities. The logistics property sector is also rapidly gaining popularity, and this is set to become a hot spot,” she adds.

Hong Kong

There remains a lot of pent up demand for property investment opportunities in Hong Kong, especially with the continuing low interest rates, according to Mr Antonio Wu, Colliers’ Deputy Managing Director, Hong Kong. 

He says, “However, good investment opportunities are becoming increasingly scarce, and it is likely many investors will decide that they can find better opportunities in overseas markets, in terms of asset quality and yields.”

This explains outbound investment transactions weigh more heavily than the inbound cases in Hong Kong in 2013. The significant inbound property investment totalled HK$5,180 million, including TW6 project at Tsuen Wan West Station purchased by Vanke JV NWD and the West tower of One Bay East purchased by Manulife.  Meanwhile, the outbound property investments include five transactions in China and the U.K. purchased by developers, private group and private investors, which involve a total transaction turnover of HK$42,700 million. 

Taiwan

All sectors of the Taiwan property market are continuing to attract interest from abroad, mainly from opportunistic investors and those intending to add value to properties, according to Mr Andrew Liu, Colliers’ Managing Director, Taiwan. 

He adds that Taiwan’s insurance companies, property developers and high-net-worth families are among the most enthusiastic overseas property investors. They are mainly motivated by a desire to expand their business activities or else diversify their property portfolio. “Government-sponsored and state-owned enterprises, high-spec industrial premises for owner occupied purpose, hotel development project hold the greatest promise in the Taiwan property market in 2014,” he predicts.