Survey from ULI, PwC Ranks Singapore, Shanghai and Sydney as Top Real Estate Investment Markets
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WASHINGTON (December 7, 2011) – Economic troubles in the United States and Europe are weighing upon local economies across the Asia Pacific region as well as investor sentiment in Asia and Australian real estate markets, according to Emerging Trends in Real Estate® Asia Pacific 2012, a real estate forecast jointly published by the Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC).
Released at a series of events in Asia beginning today, the report provides an outlook on Asia Pacific real estate investment and development trends, real estate finance and capital markets, and trends by property sector and metropolitan area. It is based on the opinions of more than 360 internationally renowned real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants.
“Asia has no shortage of investment capital, and until the middle of 2011 there was more concern over inflationary pressures than lack of demand,” said ULI Trustee and ULI South Asia Chairman Simon Treacy. “Suddenly, however, the prospect of a global relapse into recession is creating mounting unease. There will be ongoing and significant uncertainty in the global and regional economies and real estate markets over the coming 12 months. Is this a crisis or opportunity? It’s both. Asia has entered the twilight zone, as there is still much to play out globally, given the debt and political issues in the U.S. and Europe. It’s certainly time to reduce risk, focusing on cash flow as the report suggests.”
“Uncertain global macro economic conditions will continue to put pressure on property pricing, transaction activity, and financing. Capital flows remain volatile, affected by numerous cross-currents; in-flows and out-flows occur more frequently and more rapidly.” K.K. So, Asia Pacific Real Estate Tax Leader of PwC said. “However, real estate fundamentals in the region, while showing signs of softening, remained supportive of continued investment by local, regional, and international capital sources.”
Top Investment Markets for 2011
Overall, respondents were slightly less positive about the outlook for Asia Pacific countries than a year ago. The report identifies the top five investment markets for 2012:
- Singapore. Claiming the top spot for a second consecutive year, Singapore continues to become a truly global city with a burgeoning asset and wealth management sector. In turn, Singapore continues to experience strong immigration and growth in tourism. But respondents say the market may have peaked. They suggest a large pipeline of Grade A office buildings and lower growth rates in rents may hold down investor returns. Over half of the survey respondents recommended ‘hold’ in all sectors, when asked their opinion on whether 2012 would be an optimal year in which to ‘buy, hold or sell’ properties.
- Shanghai is ranked second for investment potential for the second consecutive year The Chinese city with the second largest gross domestic product continues to grow and attract institutional capital. Office space remains the key focus because of high demand and short supply, with an equal number of respondents choosing ‘buy’ and ‘hold’ in the office market. Retail growth is robust because of high domestic consumption, fueled in part by tourism, and over half of the respondents chose ‘buy’ for the retail sector.
- Sydney. The stability of Sydney, with some of the lowest risk found in the Asia Pacific region, supports its high ranking for investment potential. In 2011 there was a surge in office development, with office demand showing signs of recovery. With investors finding good access to capital from multiple sources, acquisitions across all property types have remained active and are projected to continue into 2012.
- Chongqing, included in Emerging Trends for the first time this year is ranked fourth for investment prospects. One of the fastest-growing cities in China, Chongqing is home to some of China’s largest automobile and steel corporations, among other industries. With rising labor costs in the nation’s tier-one cities, second-tier cities such as Chongqing are seeing the benefit, boosting retail opportunities. Similar to Shanghai, over half the respondents gave a ‘buy’ recommendation for retail. Office stock is expected to increase dramatically over the next five years, far beyond the market’s absorption capability.
- Beijing. Respondents reported being bullish on Beijing albeit conscious of the ongoing economic slowdown or “soft landing.” The commercial leasing market is strong, with a constant supply of new buildings being met with consistent demand and growing rents. The area is cultivating new, large start-ups, which, together with an abundant supply of capital, will support further construction. Recommendations for the office and hotel sectors focus on ‘hold’, and on both ‘buy’ and ‘hold’ for the retail and industrial sectors.
China remains the largest emerging economy although economic performance for 2012 is expected to slow and moderate over the next five years. With three of the five top cities for investment, China will be an important destination for investors, but the biggest question for foreign investors is whether they can get capital into the country given the central government’s fear over asset bubbles appearing in the real estate sector, respondents said.
India’s economy continues to produce the second-fastest growing gross domestic product in the Asia Pacific region, just behind China, but developers face great difficulty raising capital through the nation’s banking system. Within the country, investment prospects are brightest for Bangalore; however respondents noted concern about the economy in general. Rankings plummeted for New Delhi and Mumbai, both affected by inflation concerns.
Japan, which is still recovering from the March, 2011, earthquake and tsunami, shows the slowest growth in the Asia Pacific region. While reconstruction should provide some boost to income and employment, the economy still must deal with stagnant household spending, poor demographics and excess government debt. Tokyo’s investment ranking fell five slots this year to 17th. This was the second consecutive year it registered significant decline.
Across the Asia-Pacific region, the industrial/distribution sector is top-rated, followed closely by residential real estate, both for-sale and rental. Office and retail sectors are in the middle of the range, while the hotel sector is least favored for investment.
About the Urban Land Institute
The Urban Land Institute (uli.org) is a global nonprofit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in sustaining and creating thriving communities worldwide. Established in 1936, the Institute has nearly 30,000 members representing all aspects of land use and development disciplines.
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