25 September 2017 – A new report from Colliers International (NASDAQ and TSX: CIGI) highlights how economic acceleration across Asia in H1 2017 helped boost occupier demand in China, Hong Kong and Singapore. Against this background, demand for investment property in Asia has stayed firm with total transactions of completed properties up 19% YOY in H1 2017 to around USD61bn and there are only modest signs of weakening demand, despite yield compression.
The report, “A Tale of Three Cities and New Markets”, outlines the economic prospects for China, Hong Kong and Singapore, as well as the Capital Markets view of the region, and an in-depth look at the future of Belt & Road investment.
Andrew Haskins, Executive Director of Asia Research for Colliers International, stated: “Economic acceleration in Asia has boosted prospects for occupier property markets, which appear to be catching up with investment property markets. Hong Kong, Singapore and Shanghai have all seen robust deal volumes and yield compression, although Singapore perhaps stands out as an investment target looking forward. Despite capital controls, we foresee material Chinese investment in ‘Belt & Road’ markets in South East Asia over the next few years.”
Economies are picking up in Asia with China, Japan, Hong Kong and Singapore all forecast to record higher GDP growth in 2017 than 2016. Improved economic conditions have boosted occupier property markets in leading Chinese cities, and in Hong Kong and Singapore. As a result, prospects for rent growth, office net absorption and vacancy levels are generally more positive than we had assumed earlier this year.
Occupier markets seem to be catching up with firm investment markets. Hong Kong and Singapore saw robust investment activity across most market segments - office, retail, residential and hotels – in H1 2017, and were the no.1 and no.4 APAC urban investment markets ranked by completed property transactions. Hong Kong would have been stronger still including high mainland Chinese investment in undeveloped land sites. Shanghai was also strong, ranking no.3 in H1 with far higher deal volumes than any other Chinese city.
Net yields on prime grade office property in major Asian investment centres have now fallen to between about 2.0% and 4.2%. Retail and industrial yields are higher but likewise flat or falling. Spreads over ten-year bonds are narrow or even negative. However, demand shows little sign of slowing, while US dollar weakness has reduced upward pressure on Asian interest rates and so further bolstered property markets. Hence we think yields may fall even further in H2. Among the Asian gateway cities, Singapore stands out as an investment destination due to recovering occupier markets, reasonable valuations and the investment potential of the residential, logistics and retail segments among others.
The focus of Chinese investment in foreign property continues to shift from the US to Asia. According to RCA data, Chinese investors committed USD9.5 billion of capital to Asia Pacific real estate markets over H1, an increase of 46% YOY. Hong Kong was the fastest-growing net recipient of Chinese capital, accounting for more than one-half of the USD9.5 billion figure, primarily due to heavy Chinese investment in undeveloped land. RCA further suggests that Chinese investment into Japan, Singapore and South Korea grew threefold in H1 2017 compared with H1 2016.
The restrictions on overseas investment by Chinese enterprises announced by the Chinese government in late 2016 did not prevent this heavy investment in Hong Kong and other Asian markets. While the Chinese government announced stricter controls in August 2017, the controls appear to exclude investment targeted at “Belt & Road” markets. We expect material Chinese investment to start in emerging “Belt & Road” markets in the next few years, with the focus initially on the maritime route to Europe via South East Asia. This implies growing Chinese interest in markets such as the Philippines, Thailand, Cambodia, Indonesia and Pakistan.
To read the full report, click here
To read Colliers’ Capital Markets insights on the Asian Investment Property market, click here.