Published March 14, 2007

Faber finds value in Asia real estate

ASIAN real estate offers better value than property stocks because the region's equity markets are still 'vulnerable', said Marc Faber, an investor who predicted the US stock market crash in 1987.

Looking up: Gains in property prices have trailed those in real estate stocks, but Mr Faber says the smaller gain offers opportunities for investors while stocks remain vulnerable to volatility.

'I'm optimistic about Asia and emerging markets, but the stock markets at the present time are still vulnerable,' said Mr Faber, who oversees US$300 million in assets at Hong Kong-based Marc Faber Ltd. 'As an asset class, real estate in Asia presents tremendous opportunities' as 'urbanisation gets underway'.

The Morgan Stanley Capital International Asia Pacific Index tumbled 3.5 per cent the week ended March 2, the most since July, sparked by the biggest plunge in Chinese stocks in a decade.

Asia's economic expansion is expected to drive demand for real estate, attracting interest from investors drawn to rising rents, Mr Faber said in an interview. East Asian economies, including China and India, are expected to expand 4.4 per cent this year, compared with 2.7 per cent in the US and 2 per cent in Europe, according to the Asian Development Bank.

Rentals for office space in Singapore's central business district rose to US$644 per square meter (US$60 per square foot) at end-2006, still lower than the US$692 landlords were fetching in 1996 before the Asian financial crisis, according to Leslie Chua, head of research at Jones Lang LaSalle in Singapore.

In Hong Kong, rents reached US$1,105 in 2006, lower than the high of US$1,237 in 1994. Mr Chua estimates rents in Hong Kong will rise 10 per cent this year, and jump 50 per cent in Singapore. Jones Lang LaSalle also estimates demand for Singapore office properties outstrips supply by five times.

'Property is fast becoming an alternative asset class like gold,' Mr Chua said. 'We do see more upside to property prices and rents because people are becoming more confident.'

Hong Kong billionaire Li Ka-shing's Cheung Kong (Holdings) Ltd is among the biggest developers in both cities. CapitaLand Ltd, South-east Asia's biggest developer, has also expanded its real estate projects to China and Australia.

To be sure, gains in property prices have trailed those in stocks. The value of Singapore's office buildings rose 17 per cent in 2006, according to government data, compared with the 65 per cent gain in the city-state's property stock index. Mr Faber says the smaller gain offers opportunities for investors.

'If you compare Singapore to an equal city in the western world, like London, New York, Singapore is not expensive, it's reasonable,' Mr Faber, the publisher of the Gloom, Boom and Doom Report, said Monday. 'They are not in a bubble stage like they were in 1996 and 1997.'

China and Vietnam, two of Asia's fastest-growing economies, are also attractive real estate markets, Mr Faber said. Vietnam's economy, which expanded 7.4 per cent annually in the past decade, is expected to grow at least 8 per cent a year in the next 10 years, according to government forecasts. China's economy, which expanded 10.7 per cent in 2006, the fastest since 1995, has grown an average of 9.2 per cent in the past decade.

In the past month, Citigroup Inc's property unit raised US$1.29 billion for an Asian real estate-related fund, and Prudential Plc also plans to invest as much as US$1 billion in the region's property market. Gome Group, owned by China's richest man Huang Guangyu, teamed up with Pacific Star real estate group to invest US$800 million in the country's property market.

'Stock markets go through cycles, there's up and down and this leads to speculation and volatility,' said Pietro Doran, who manages US$650 million in real estate at Seoul-based Doran Capital Partners. 'In the long term, for real estate, it's more steady.'

Mr Faber and Mr Doran were speaking at the Asia Public Real Estate Association forum in Ho Chi Minh City, Vietnam. - Bloomberg