Published August 6, 2009

Domestic investors drive Asia investment deals

H1 investment sales in region fall 58% to US$12.4b as global institutions sidelined


(SINGAPORE) Domestic investors played a bigger role in Asian property investment sales in the first half of this year as global institutional investors and property funds stayed mostly on the sidelines, says CB Richard Ellis.

Domestic investors were involved in nine of the 10 largest real estate investment deals in the region in H1. The 10 biggest deals totalled US$5.1 billion - a 46 per cent drop from H1 2008.

Overall, inter-regional cross-border investment accounted for only 8 per cent of total Asian investment sales of US$12.4 billion during the first half, down from a 30 per cent share in H1 2008.

The total value of property investment deals in Asia in H1 this year was down 58 per cent from US$29.5 billion in H1 2008. In the second quarter of 2009, US$7.3 billion of deals were sealed, up 41 per cent from US$5.1 billion in Q1.

Looking ahead, CBRE Research Asia's executive director Andrew Ness says: 'Cash-rich local investors are most likely to be the main drivers of the investment market over the short to medium term, as many of them are interested in purchasing quality assets for long-term investment. However, it is possible that even domestic investors will find it difficult to find suitable investment opportunities due to the shortage of quality properties put up for sale during the current downturn.'

CBRE's figures are preliminary and include land transactions.

The biggest transaction in H1 was the sale of AIG Otemachi Building in Tokyo for about US$1.2 billion. Prime office properties continued to attract the strongest interest from investors, accounting for six of the 10 largest deals in the region.

The improved market in Q2 was driven to some extent by debt-funded investors compromising at current price levels and liquidating assets to service near-term debt obligations, CBRE says. Investor sentiment generally turned more positive as the first half of the year progressed.

Hong Kong, Singapore and Taiwan experienced the largest quarterly rebound in transaction volume, up 302 per cent, 297 per cent and 151 per cent respectively in Q2. There was also an increase in land acquisitions in China during the quarter, as big local developers scrambled to snap up sites in anticipation of imminent appreciation in prices.

Foreign institutional investors remained inactive, discouraged by the lack of further discounting, while local investors were more active on account of their easier access to domestic credit. India and Taiwan ended the six-month period with positive year-on-year growth of 339 per cent and 12 per cent respectively.

'The change in investor sentiment in Taiwan primarily resulted from the expected opening of the domestic market to mainland Chinese investment,' says CBRE.

'Meanwhile, the formation of a stable government in India coupled with the utilisation of Qualified Institutional Placement (QIP) by real estate companies to raise new funds provided a boost to the Indian property investment market.'

Tokyo emerged as the location with the largest number of distressed or potentially distressed real estate assets in the region in Q2. Owners came under pressure to refinance deals that have fallen to well below the original loan-to-valuation ratios prescribed by their loan covenants.

'The period saw a number of major office transactions concluded at US$50 million and above, with Japanese investors and investment institutions accounting for virtually all transactions, proving that appetite still persists in Japan for acquiring quality assets,' says CBRE.