Published May 16, 2006

Global property bubble won't burst: analyst
Outlook is still positive, says DTZ international research head


IF there is a global property bubble, it is not about to burst - even though prices are close to the top of the market, one property analyst says.

Joe Valente, head of international research at DTZ, has weighed the odds. For instance, where he notes that yields are below financing rates in some markets, he also believes this is not a problem if there is sufficient income growth coming through. The outlook is still positive, he says. 'Perhaps not a bubble but close to the top of the market and hoping for a soft landing,' he says.

Last year, there was an estimated US$350 billion spent on buying real estate investments, and Mr Valente says US$50 billion of investment transactions were in the Asia-Pacific region, 60 per cent more than in the previous year. He expects the figure to increase by another 30 per cent to US$65 billion in 2006.

In 2005, total investment purchases were worth US$170 billion in the US and US$125 billion in Europe.

Cross-border activity in Asia (or intra-Asia activity) accounted for US$3.8 billion.

In Singapore, Mr Valente said he was 'more confident in the industrial and office sector'. Pointing out that values are still below previous peak levels, he expects 11 per cent growth per year in Grade A office leasing markets over the next five years up to 2010.

Where the growth in office rents is being spurred by a lack of Grade A supply, the high-tech industrial sector faces a similar shortage, leading Mr Valente to project a 9 per cent growth per year between 2005 and 2010.

Rising tourism and strong demand has resulted in 'virtually zero vacancy rates' in prime retail space but Mr Valente believes new supply at Orchard Road in 2009-10 could reduce rate of rental growth. As such, he projects a 1.2 per cent per annum increase in retail market leasing over the period 2006-10.

For real estate investment trusts (Reits), Mr Valente considers Singapore a 'maturing market' compared to some regional markets like Japan. But he believes yield spread over 10-year bonds (150 bps) is still attractive. Total market capitalisation of the public equity markets which was given a boost from the growth of Reits was US$94 billion. Japan commands 20 per cent of this, followed by Hong Kong's 5 per cent. Singapore commands about 3 per cent of total market cap. What puts Singapore in good stead however, is the 'liquidity of the market here', adds Mr Valente.

Generally, he believes the outlook is good and that investors have put China, Singapore and Malaysia on their 'buy lists'. He points out that 30 per cent of investors failed to meet their allocations in 2005, and less than 5 per cent are seeking to reduce current exposure to real estate.