Asia, 15 December 2015
— Cross-border transactions in Asia will pick up in intensity in 2016, according to Colliers International, building on a year in which they are estimated to have grown by more than one-fifth. As the United States reverses its lax monetary policy, investors will react by higher interest rates by refocusing their investment within the region.
Asia will be a key target for offshore capital, with investors looking to benefit from the region’s rapid urbanisation and expanding middle class. Investors may also benefit from some loosening of investment restrictions around the region as several property markets show signs of weakening.
Through the first three quarters of the year, investment flows were up 21%, year on year. The total tally of US$40 billion in investment for the first three quarters was on track to hit US$45 billion for 2015. The pace of deals should continue, resulting in another significant boost in volumes for 2016. That’s because funds and institutional investors looking for long-term plays will be lured back to the region by higher yields and favourable fundamentals.
However, macroeconomic measures will likely result in a tumultuous year, with plenty of volatility. As the United States raises interest rates, Hong Kong and Singapore will be forced to do the same. This will likely result in higher real-estate yields. On the other hand, funding costs will likely drop in nations such as China and India as those countries adapt their monetary policy to stimulate their economies.
“We expect governments in jurisdictions such as Hong Kong and Singapore to review their restrictive policies that place higher transactional costs on buyers and curb mortgage lending,” Terence Tang, managing director of Asia capital markets & investment services said. “It is clear that both markets are now experiencing downward pressure on assets pricing, and the regulations may no longer be required. However some governments may take a while to repeal these measures.”
Faced with a slowdown, developers may show a greater willingness to discount asking prices in a bid to boost volumes. The gap in expectations between buyers and sellers should therefore narrow.
Core real estate such as Grade A office buildings is lacking throughout most of Asia, but will be in strong demand. Major institutional investors such as sovereign wealth funds and pension funds are under-allocated to real estate as an asset class, with less than 2% of assets under management invested in property. When available, core real-estate investments mesh very well with their long-term objectives, suggesting those institutional players will continue to allocate increasing amounts of capital to the asset class over the course of the year.
For more results from Colliers International’s Asia Property Outlook 2016 report, please visit http://www.colliers.com/en-gb/asia/realestate2016