Although 2009 will continue to be a tough year for the real estate investment market across Asia, now is the time for investors to take advantage of the weakness in the market. This is the main message from real estate firm Colliers International following the release of its Asia-Pacific first-quarter market bulletin.
In the first three months of the year, the region's property investment market continued to shrink, with the total value of investment transactions down more than 50% quarter-on-quarter. South Asia was hurt more than China, and industrial property was the most affected sector.
The buyers were either private investors with cash on hand or owner-occupiers -- both of whom are mainly interested in properties that come at a moderate price. As a result, deals over the $50 million mark were rare in the first quarter. Institutions and real estate funds, which typically go for the bigger deals, are still waiting for the right time to return to the market.
Many buyers have not entered the market because financing is still difficult to obtain. Interest rates may be down across the region, but risk premiums have expanded as investors perceive a rise in liquidity risk as well as continued problems in the global economy. As a result, investment yields in real estate fell by 25bp to 75bp in the past quarter.
But perhaps the big funds should not sit on the sidelines for too long. "Given the projection that an economic recovery [is] in sight in 2010, now is the time for investors to identify their targets, take advantage of current price weakness and act before the market takes off again," said Piers Brunner, Colliers' chief operating officer for Asia.
With regard to individual markets, China accounted for the majority of investment transactions, or 75%, in the first quarter, compared to 50% in the third quarter of 2008, just before the financial crisis started. The report puts this down to "risk-loving investors who made pre-emptive moves well before the recent revision of the Chinese insurance law". The new law allows domestic insurance companies to invest directly in real estate, which could bring up to Rmb100 billion ($15 billion) of fund money into China's real estate sector.
"Among the different markets in the country, Shanghai's residential, office [in the central business districts] and retail property markets are perceived as opportunistic for investment since they are supported by resilient end-user demand, sustained demand by [multi-nationals] and sustained growth of retail sales respectively," said Lina Wong, Colliers' managing director for east and southwest China.
In Hong Kong, however, investors continued to be cautious. According to Colliers, investors are pricing in a hefty risk premium in their offers, causing the spread between real estate investment yields and bank lending rates to expand more.
Hong Kong's office sector is 45% down from its peak, making quality offices in the central business districts more attractive to long-term investors. Also, retail space in good locations could be attractive to investors since visitor numbers from mainland China remain strong.