The Emerging Trends in Real Estate Asia Pacific report for 2019 reported that Singapore is the second best prospect in the Asia Pacific for real estate investments. 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.
The report by Urban Land Institute (ULI) and PwC is based on the opinions of 350 real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants. The Urban Land Institute is a nonprofit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide. Established in 1936, the institute has more than 42,000 members worldwide representing all aspects of land use and development disciplines, including more than 2,000 in the Asia Pacific Region.
The report citing CBRE data said Singapore as the largest source of Asia Pacific outbound real estate investments in the first half of 2018, with US$9.06 billion of capital deployed.
Starved of yield and opportunities at home, Singapore real estate investment trusts (REITs) and developers have been buying overseas, especially in Australia, Southeast Asia, and Europe.
The report said that in addition, Singapore acts as a through port for capital from throughout Southeast Asia and indeed globally, performing the same function that Hong Kong does for Chinese capital. The favoured destination for Singaporean capital in the first half of 2018 was Europe, according to CBRE, with US$3.4 billion of investment.
Looking at the Asia Pacific region as a whole, ongoing competition among investors to place capital is continuing to shape how the sourcing of assets is approached. As is the case with Hong Kong, value-add plays continue to be a focus, with owners looking to upgrade assets by providing more flexibility, better user experiences, and improvements leveraging design and technology functions. As a result, investors today say they are likely to be more site specific, working from the ground up rather than the top down.
Among the trends for real estate investments in the Asia Pacific region that the report cites are:
Logistics facilities continue to be a go-to investment: The only sector where investor opinions were uniformly bullish, investment allocations to the sector have risen significantly in 2018.
Co-living as a template for future housing: As cities are becoming denser and housing costs rise, more developers are looking to co-living as a way to pack more people into smaller areas.
Capital flows remain strong: The ongoing buildup of liquidity across the Asia Pacific region still leads to huge sums of money crossing borders, to be invested in foreign real estate assets. Strong outflows in the region seem certain to continue, especially with new reserves from Japan likely to enter the mix in 2019.
The Emerging Trends report, which is being released at a series of events across Asia over the next several weeks, 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 over 350 survey responses received from real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants.
The top five markets for real estate investments and development in 2019:
- Melbourne (first in investment, first in development) – Melbourne has jumped ahead of Sydney this year. It offers a constrained office supply pipeline, good yield spread over the cost of debt and sovereign bonds, a deep, liquid, core market and fair prospects for rental growth.
- Singapore (second in investment, eighth in development) – An improvement in Singapore’s office market has enabled the city to take the second spot in investment rankings, as it continues to rebound from cyclical lows.
- Sydney (Third in investment, third in development) – Sydney remains near the top of the rankings for the same reasons as Melbourne. The city is a favourite of global investors due to relatively high returns and as a safe-haven play. Competition for assets has helped sustain pricing, while low vacancies and growing demand for space suggest rents will continue to rise.
- Tokyo (fourth in investment, fourth in development) – Tokyo’s move to the fourth spot is somewhat surprising after last year’s drop, but probably reflects what has always made it a favourite for institutional buyers: cheap finance, attractive leverage, a good spread over interest rates, and a large stock of investment-grade assets.
- Osaka (fifth in investment, sixth in development) – The lack of reasonably priced core assets in Tokyo continues to push investors into regional Japan, where local economies are now increasingly mature and stable. With supply tight in both residential and office sectors, the city is now probably the top market outside the capital.
Leading buy/hold/sell ratings for real estate investments in the various asset classes are as follows:
- Office — buy Ho Chi Minh City and Tokyo, sell Taipei and Auckland.
- Residential — buy Ho Chi Minh City and Bangalore, sell Kuala Lumpur and Auckland.
- Retail — buy Ho Chi Min City and Mumbai, sell Taipei and Kuala Lumpur.
- Industrial/distribution — buy Bangalore and Mumbai, sell Taipei and Kuala Lumpur.
- Hotels – buy Tokyo and Ho Chi Minh City, sell Taipei and Beijing.
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