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January 14, 2015

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High demand predicted for property across Asia

ASIA’S consistent economic growth should lead to sustained demand for institutional-grade assets across the full spectrum of asset classes in the region in 2015, according to Colliers International’s 2015 Property Outlook.

What will be different from recent years is that the inbound volume of capital may be much more significant in 2015, as institutional investors seek to rebalance their allocations. They are currently under-invested in Asia, requiring them to increase their property positions in the region.

On the policy front, investors may also benefit from a relaxation of some of the purchasing curbs that have been installed in several markets over the past few years, according to Colliers’ forecast. Prospective investors should welcome these changes, as they lower liquidity risk. The situation actually contrasts with overseas markets, where yields have been compressed and existing investment-grade assets are increasingly difficult to find.

“It is likely that some Asian governments will relax their property cooling measures, particularly given the softening of residential prices and slowing economic growth,” said Terence Tang, managing director of capital markets, Asia. “We are already witnessing some longer term investors who are now actively looking for realistically priced deals to take advantage of the slow market, in view of the potentially lower exit risk.”

The reason why more long-term capital is coming back to Asia could be due to the narrowing of the gap in yield between Asia and overseas markets, Colliers said. More stock will also be available for sale either from investment funds or from brand-new developments completed in districts outside city cores. Developments will be pitched at reasonable prices, which will stimulate a distinct surge in sales transactions.

Chinese mainland investors are also likely to continue their buying spree, both within Asia and outside the region, Colliers has predicted. Chinese developers and insurance companies will likely build on the US$9.5 billion in outbound investment from China in 2014, which showed an increase of 7 percent.

Meanwhile, inbound investment into China is expected to fall further from US$23 billion, which was already down 27 percent from the previous year.

The main targets for Chinese investors, who are looking for overseas opportunities to diversify their investments and enhance their overall returns, have been “gateway” cities such as New York, London, Sydney and San Francisco. But they are broadening their horizons and looking at secondary cities such as Boston, Frankfurt and Melbourne.

“The type of investor looking for international deals is also increasingly varied, with new players entering the market,” said Lina Wong, managing director, Colliers East and Southwest China. “We predict that over the next few years, investors will expand their reach into a broader range of asset types, as well as increasing the size of deals.”

Chinese mainland investors are also expected to increase their footprint in Hong Kong, which will remain active in 2015 with buyers competing for value-added properties, Colliers said.

Around the region, the Singapore office market will continue to attract investors in 2015, Colliers predicted, and an undersupply of new office space will support healthy occupancy rates as well as rising rents and prices.

Residential real estate has been having a tough time in the city state, and both transaction numbers and prices have been falling for some time.

“Investors will be keeping an eye out for good-value opportunities, especially in the luxury segment,” Tang said.




 

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