Published June 27, 2009

Property investors eye China, Australia


CHINA and Australia are seen as good bets in the Asia-Pacific for real estate investments, according to two recent reports.

A survey of 73 investors, fund managers and fund of funds managers showed that they rank China, Australia and Japan as the three most appealing locations.

Singapore, on the other hand, was ranked last among seven places in terms of preferred location - after China, Australia, Japan, South Korea, Hong Kong and India. The survey was conducted by the Asian Real Estate Association (AREA) together with its partners.

Investors were especially bullish on the residential and retail sectors in China, as well as the Australian office market.

In the same vein, property firm DTZ said in a report that it expects continued weakness in property markets across the region through 2009 and into 2010, but a divergent profile of recovery - with Australia and China ahead of other key markets.

While total returns are forecast to be negative in 2009 across the region, China and Australia will be back in positive territory in 2010, ahead of Japan, Hong Kong and Singapore, DTZ's June 24 report predicted.

'2009 will continue to be a difficult year for investor and occupier markets,' said David Green-Morgan, head of Asia-Pacific research at DTZ. 'We see fair-value opportunities emerging in Australia and China towards the end of 2009 and 2010 as the two economies embark on a period of recovery.'

In 2008, the Asia-Pacific felt the full effects of the global downturn - and property markets were not spared.

'The value of the invested real estate stock in the Asia-Pacific declined in 2008, for the first time since 2001,' DTZ said. The fall in value amounted to 8 per cent in local currency terms, but a more moderate one per cent in US dollar terms.

Transaction volumes almost halved in 2008 from 2007.

AREA's survey, conducted in April this year, also showed a downturn in sentiment over the past 12 months. In the 2008 survey, all respondents - institutional investors, fund managers and fund of funds managers - indicated that they wanted to increase their activity in Asian non-listed real estate.

Since then, there has been a big drop in the number of investors who intend to allocate funds to Asian non-listed real estate in the short term. The percentage has fallen from 88 per cent of respondents in 2008 to just 24 per cent in the latest survey.

However, the respondents are more upbeat about mid-term prospects for Asian real estate. Twice as many intend to increase allocations to non-listed real estate over the medium term - three to five years - versus the short term. This is consistent with most investors' expectations of a market recovery in 2010.

DTZ reckons that things are beginning to look up for the key property markets in the Asia-Pacific. Opportunistic deals are continuing to occur across the region and a broad 'hunting season' should emerge over the next 12-18 months. Looking at specific markets, Sydney is expected to reach 'fair value' in the second half of 2009, followed by Shanghai in early 2010.

However, some concerns remain. 'While we will start to see value returning to markets in the Asia-Pacific, funding remains a concern, and may become a bottleneck for the recovery of activity in the commercial property markets both in Asia-Pacific and worldwide,' said DTZ's Mr Green-Morgan.

Investors should not lose sight of the fact that economic growth across the region is expected to be lower in 2009 and still below trend growth in 2010, DTZ warned. 'The implications for property markets, through below-trend occupational demand and, in some cases, the required clearing of excess supply, will translate into continued weakness in the near-term,' it said.

Likewise, in the AREA survey, respondents said that obstacles remain when it comes to investing in Asian non-listed real estate funds. Market conditions were identified as the top challenge faced. This was followed by 'transparency and market information on non-listed vehicles' and 'availability of suitable products'.

DTZ also said that it may be too soon to call a bottom as research shows that the historic series is volatile. 'We need to see a few more quarters of data before we can call the bottom of the market,' Mr Green-Morgan said.