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Thread: Property investment in Asia grows in Q3

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    Default Property investment in Asia grows in Q3,00.html?

    Published November 5, 2009

    Property investment in Asia grows in Q3

    Office market's fall stabilises due to improvement in employment


    (SINGAPORE) The Asian real estate investment market continued to gain momentum in the recent third quarter, as capital values generally stabilised and sentiment improved.

    Direct real estate investment in Asia jumped 25 per cent quarter-on-quarter to an estimated US$9.1 billion, according to a report by CB Richard Ellis (CBRE).

    The property firm also said in a separate note that the Asian office market down-cycle stabilised in Q3 as a general improvement in the region's employment markets provided clear indication that the office market was close to bottom.

    'Investors in Asia have become more optimistic over the past few months,' said Andrew Ness, executive director of CBRE Research for Asia. 'Cash-rich domestic buyers continue to underpin investment activity, while foreign investors are slowly emerging from a quiet first half-year to look for medium to long-term investments.'

    However, several Asian governments - including those in Hong Kong, Singapore, China and South Korea - have voiced concern that real estate is rebounding too strongly and have taken steps to limit risks associated with potential over-investment, Mr Ness said.

    'The measures are likely to cool down the market but are expected to have only a limited effect on pricing,' he said.

    In Q3, Hong Kong accounted for 36 per cent of total investment sales, followed by China, Korea and Taiwan. In Singapore, the number of transactions above $15 million continued to edge up quarter-on-quarter, with volume exceeding US$900 million, or 10 per cent of the total volume in Asia.

    However, overall transaction volume remained low in the first nine months of this year, falling 49 per cent year-on-year.

    By sub-sectors, the Asian office market attracted US$4.7 billion of investment in Q3, or 52 per cent of the total flow of capital. Residential properties accounted for 16 per cent and the retail sector 13 per cent.

    In a separate report, CBRE said that Asian office markets continued to improve in Q3 as rental falls slowed further.

    The overall vacancy for Asian cities remained at 12.5 per cent - unchanged from the previous quarter. But Tokyo, Hong Kong, Beijing, Seoul and several South-east Asian cities all recorded a minor decline in the amount of space vacancy.

    'Corporations outside of the export trade sector commenced expanding headcount and financial institutions began hiring staff to pursue high-margin businesses as economic conditions improved,' said CBRE. 'Historically, office vacancy has trailed closely behind the unemployment rate.'

    On the back of this, the CBRE Asia Office Rental Index shows office rents in Asia fell 3.1 per cent in Q3, decelerating from a 6.7 per cent decline in Q2. CBRE expects the rate of decline to ease further or bottom out in the coming months.

    In Singapore, office rents fell for a fourth consecutive quarter in Q3 but the pace of decline eased.

    Leasing activity is also beginning to pick up slightly, industry players have said. Marina Bay Financial Centre (MBFC) said in an update yesterday that BHP Billiton will take up an additional 89,000 sq ft of space at Tower Two, bringing the total floor area leased at the development by the Australian resource company to 231,000 sq ft.

    Overall pre-leasing levels at MBFC now stand at 64 per cent.

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    Even distressed sellers fetch top prices in Asia
    Michael Flaherty and Narayanan Somasundaram
    Hong Kong
    Friday, 6 November 2009, 3.43pm CCT

    ® AIG, ING fetch top prices for Asia assets

    ® Other Asia auctions attracting high bids

    ® Sellers' market climate in Asia underscores bullish signals

    ® Scarcity of quality assets also a factor

    In Asia lately, it pays to be a seller -- even if you're a company under pressure to offload an asset or two.

    That's not normally the case. Sellers under pressure typically command lower prices. But a few factors, including the strong economic environment holding up across Asia, are turning that rule upside down.

    Despite a few bumps in the region's markets, confidence is up among executives, as are corporate valuations.

    "The market for buyers right now is terrible," said the head of an Asia-focused private equity firm, who did not want to be named. The reply was tongue-in-cheek, though with a whiff of real frustration. "There's just a lot of liquidity out here. Sellers are asking for high prices."

    Of all the barometers used to gauge the current strength of Asia's economic climate, the M&A market shows particularly bullish signals. Bankers in this business are always bullish ... but the prices paid for some assets sold by what are technically "distressed sellers" have raised eyebrows.

    American International Group, shedding units globally after a U.S. government bailout, sold its Taiwan life insurance unit for $2.15 billion last month. Two months earlier, media reports and sources said the company seemed to be having a hard time attracting more than $1.5 billion.

    A day later, ING, the Dutch financial group restructuring after its own massive government bailout, sold its Asia private banking unit for $1.5 billion -- around 5.8 percent of its assets, or more than double what two buyers paid for ING's Swiss banking units earlier in the month.

    The ING sale underscored the Asia scarcity factor that bankers and investors point to when considering the high prices being paid. In an emerging market region, few opportunities have existed to scoop up an asset as prized as ING's.

    Only recently, market chatter indicated Citigroup, another bailed out U.S. financial institution selling assets worldwide, would not get as much as it had hoped from the sale of its Japanese telemarketing group.

    But on Wednesday, Reuters reported that Bain Capital was in exclusive talks to buy the group, Bellsystem24, for what sources said could be more than $1 billion -- up to 15 percent higher than other suitors had offered.

    Bankers say the tide has turned faster in sellers' favour in Asia because of the momentum built after the region survived the financial crisis largely intact. Where sellers in the United States and Europe may struggle to generate competitive auctions, Asia is thriving.

    True, M&A volumes in Asia and across the globe are down from where they were in 2007. But Asia's deal volume has fallen less dramatically than the United States or Europe.

    The region's continued growth potential still makes it a compelling investment destination for a company or a financial investor staring at a profit plateau at home.

    Look at the auction of Aircel's telecom towers.

    Sources say the India-based sale is attracting offers above the $1.5 billion expected. American Tower, Tata Quippo, an unlisted firm which counts the Tata conglomerate as a partner, and GTL Infrastructure are among bidders for India's last remaining large tower business, sources have said.

    "The momentum is shifting to sellers. As long as the liquidity is sloshing around, sellers, however distressed they may be, will be in a position to command," a banking source said. The source did not want to be named as he is not authorised to speak to the media.

    The price paid for ING's Asia banking unit attracted enough commentary to prompt the buyer Oversea-Chinese Banking Corp Ltd's CEO to say publicly his bank was not embarrassed or surprised at the deal value, which it thought was healthy.

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