Emerging Trends in Real Estate® Asia Pacific 2010

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In the recession’s aftermath, Asia Pacific Real Estate Markets Are Flashing Positive Signals:
Emerging Trends in Real Estate® Asia Pacific 2010
ULI, PricewaterhouseCoopers Survey Ranks Tokyo Among Top Ten Real Estate Investment Markets

 

TOKYO (December 3, 2009) – Tokyo is among the top ten real estate markets for investment in 2010, according to the Emerging Trends in Real Estate® Asia Pacific 2010 report, released in Tokyo today by the Urban Land Institute (ULI) and PricewaterhouseCoopers LLP (PwC).

The report, which provides an outlook on Asia Pacific real estate investment and development trends, points out that market potential remains promising in Tokyo -- despite concerns over the fallout of global economic recession. “Foreign investors are now migrating to Japan as part of an overall flight to quality in difficult times,” Emerging Trends says. “Others are looking to pick up prime assets, which rarely come into the market except in times of crisis.”

Most investors in Tokyo are focused on the office and residential sectors, notes the report, adding that interest in those sectors may be spurred by slowing vacancies and rental rate declines. The report states the perceived stability of such a large market as Tokyo continues to hold major appeal. 

Emerging Trends, being released at a series of events in Asia over the next several days, was a highlight of the 12th annual ULI Japan conference, held today in Tokyo. The report is based on the opinions of more than 270 internationally renowned real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants.

Since the onset of the global economic meltdown, asset markets in the Asia Pacific region are holding up surprisingly well compared to their peers in Europe and the United States. While both pricing and rentals in the region fell steeply in 2008 and early 2009 in step with those in the West, markets across the Asia Pacific region have been lifted in the second half of the year by the remarkable resilience of the Chinese economy, which has been buoyed by a series of fiscal and monetary stimulus measures.

As a result, many Asian markets have begun to flash positive signals toward the end of 2009. Transaction volumes have rebounded, albeit from a very low base and led overwhelmingly by China.

In spite of a stalemate between buyers and sellers in some markets, and significant rent fluctuations, Asia has in general experienced both an increase in transaction volume and higher property prices – with a large part of the upturn occurring in China, the report notes. Unlike the prevalence of distressed sales occurring in the United States and Europe, distressed sales in Asia have been relatively minimal. Emerging Trends attributes this to several factors, including:

  • A relative abundance of liquidity;
  • Relatively low loan-to-value ratios, leaving borrowers less vulnerable to loan servicing problems when prices declined;
  • The fact that Asian banks remain well capitalized, having experienced few major losses from derivative investments;
  • The ability of many large investment institutions to recapitalize via the capital markets, (particularly in Australia and Singapore) allowing them to pay down debt; and
  • Business sentiment remaining sanguine.

Tentative Recovery

Despite the newly bullish atmosphere, the rebounds in most Asia Pacific markets (China excepted) seem tentative and fragile. Although Asia Pacific governments will probably be able to sustain high rates of liquidity for the foreseeable future, their near-term prospects are probably tied to developments in the West and in particular the United States, where deleveraging is far from over. With the prospects for Western economies precarious, it remains to be seen whether the confidence in the Asia Pacific region is warranted.

“Although Asian real estate markets never reached the level of stagnation seen in the U.S. and Europe, and the ongoing activity there is encouraging, it is important to keep the outlook for growth in perspective,” said ULI Chief Executive Officer Patrick L. Phillips.

“The idea that the recession is likely over gives rise to the widespread notion that global economies will now revert gradually to the same trajectories as in the past, which is normally what happens when recessions end. This is particularly true of Asia, which has avoided the worst of the fallout,” Phillips continued.

“This time, however, the aftermath is likely to be different because the imbalances that led to the global downturn remain embedded in the system and cannot be quickly eliminated.  Moreover, with spending by Western consumers no longer acting as the primary engine of global economic growth, a new driver is needed to boost the world’s economy, and, in turn, the global real estate industry.”

Raymond Kahn, a Tokyo-based tax partner of PricewaterhouseCoopers added that “Although it has been a difficult year for many real estate firms and investors, the recent declines have also created opportunities for those able to invest.  Thus, while difficult times may continue, once conditions stabilize, we expect to see an increase in interest in Japan by foreign investors.” 

Markets to Watch

The predictions Emerging Trends makes for Asia are based heavily on projections for strong activity in China and India. “I think there are buying opportunities for some time,” states one investor. This is reflected in the choices made by survey participants for real estate investment and development:

  • Shanghai, Hong Kong and Beijing are the top three real estate investment prospects;
  • Shanghai, Mumbai, and New Delhi are first, second, and fourth, respectively, for real estate development opportunities. (Ho Chi Minh City ranked third for development prospects.)

Shanghai – Shanghai is ranked as the top city for investment, primarily due to the Chinese government’s decision to infuse the economy with liquidity, which has led to a lending surge and a sharp rebound in commercial property prices. Areas of interest to investors: retail, industrial, and rental apartments. In terms of development opportunities, Shanghai also occupies first place in the survey for development opportunities. The report points to a surge in land purchases by developers in that city, and a high interest on retail and residential sectors as lucrative sectors for development.

Hong Kong – Hong Kong is rated as the second most favored city for investment, although property prices there have been buoyed less by capital flows stemming from the government. One standout sector: retail, which the report says has stayed strong throughout the recession.

Beijing – Beijing jumped up nine spots from last year to third place as an investor favorite. Capital flows continue to rise following the sudden reversal in financial fortunes in the first quarter of the year. Both the residential and manufacturing sectors are viewed favorably by survey participants.

Mumbai – Mumbai ranked second only to Shanghai as the most promising development market.  Development has increased there in all property sectors, but construction of affordable housing is particularly strong, as the government continues to lower mortgages and the middle class is being offered “good-quality, honest accommodations.”

Ho Chi Minh City – Ho Chi Minh City ranked third for development prospects. The driving force: a rapidly expanding middle class. In addition to residential opportunities, growth of the middle-class has triggered interest in retail development.   

– Ends –

About Emerging Trends in Real Estate® Asia Pacific

Emerging Trends in Real Estate® Asia Pacific 2010 is available at http://www.uli.org/ResearchAndPublications/EmergingTrends.aspx. This is the fourth Asia Pacific edition of the highly regarded Emerging Trends in Real Estate® annual investor survey, which has covered United States markets for 31 years and European markets for seven years 

About the Urban Land Institute

The Urban Land Institute (www.uli.org) is a global nonprofit education and research institute supported by its members.  Its mission is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide.  Established in 1936, the Institute has nearly 34,000 members representing all aspects of land use and development disciplines.

About PricewaterhouseCoopers - Globally

PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to enhance value for its clients and their stakeholders and to build public trust. More than 163,000 people in 151 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.

"PricewaterhouseCoopers" refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

About PricewaterhouseCoopers Japan

PricewaterhouseCoopers Japan (PwC Japan) represents PricewaterhouseCoopers Aarata, PwC Advisory Co., Ltd., PricewaterhouseCoopers Consultants Co., Ltd., Zeirishi-Hojin PricewaterhouseCoopers, and their subsidiaries.  Each entity is a member firm of the PricewaterhouseCoopers global network in Japan, operating as a separate and independent legal entity.

To address complex and diversified business challenges, PwC Japan consolidates expertise of assurance, advisory, and tax professional services as well as enhances its structure in order to cooperate organically.  As professional service firm with a total number of more than 4000 partners and staff, PwC Japan provides quality client services to meet their needs and expectations.