SINGAPORE (September 27, 2007) – Shanghai, Singapore and Tokyo rank as the three most promising Asia Pacific cities in terms of real estate investment prospects, according to Emerging Trends in Real Estate® Asia Pacific 2008 , just published by the Urban Land Institute (ULI) and PricewaterhouseCoopers LLP. The three cities also received high ratings for development potential, reflecting their status as prominent global gateways.
ULI, based in Washington, D.C., is a global education and research institute dedicated to responsible land use; its ULI Asia district council serves the institute’s growing membership in countries throughout Asia.
The report, being released at a series of events in Asia over the next several days, provides an outlook on Asia Pacific real estate investment and development trends, real estate finance and capital markets, trends by property sector and metropolitan area, and other real estate issues pertinent to the countries in Asia. Twenty markets are included in the report. It is the second Asia Pacific edition of the highly regarded annual Emerging Trends in Real Estate® investor survey, which has covered United States markets for 29 years and European markets for five years.
Based on the opinions of internationally renowned real estate professionals, Emerging Trends is one of the most respected and anticipated outlooks for the industry. The Asia Pacific version reflects interviews with and surveys of more than 190 professionals, including investors, developers, property company representatives, lenders, brokers and consultants.
ULI Senior Resident Fellow Stephen Blank is presenting the report to Institute members during meetings in Tokyo, Singapore and Hong Kong. According to Blank, one change highlighted in Emerging Trends is the rising number of individuals and firms now active in more than one Asia Pacific market, indicating a growing comfort level by the business community with operating in several cities offering widely varying conditions. “It’s clear that the Asia Pacific property market is still as diverse today as it was a year ago, in terms of opportunities, risks, capital markets, economics, demographics and business cycles,” Blank said. “The fact that more businesses understand and recognize the diversity and variations is undeniably another step toward market maturity.”
David Sandison, Tax Partner, PricewaterhouseCoopers in Singapore, acknowledged Blank's observations. "It is expected that even greater amounts of capital will be flooding Asia Pacific real estate markets in 2008. The real challenge for investors will lie in finding the right assets against the backdrop of yield compression and scrutiny by regional governments and tax authorities," he added.
Sentiment was strong among survey participants to either buy or hold all types of properties in Shanghai, Singapore and Tokyo, rather than sell properties, illustrating the cities’ strong popularity with the investment community.
Shanghai, which topped the list for investment prospects, edged up from its second-place ranking last year. Still, despite its characterization as an elite city for the real estate industry, some concern was expressed regarding a growing oversupply of some properties in Shanghai. The greatest number of “buy” recommendations in Shanghai went to the industrial/distribution sector, 67 percent of the respondents advised buying those properties; while 22 percent advised holding. Less than 11 percent recommended selling industrial/distribution properties properties.
Sixty percent recommended buying retail space, 31 percent advised holding, and 9 percent, selling. Fifty-two percent recommended buying office space, 35 percent advised holding, and 13 percent, selling. In the retail market, 45 percent of the participants advised buying; 41 percent, holding; and 13 percent, selling. In the apartment residential/rental, 48 percent recommended buying; 35 percent, holding; and 17 percent, selling.
Singapore received the highest rating of any of the cities included in the report in terms of overall risk. Singapore is “certainly one of the markets in the area that provides a very stable legal and tax environment, and property rights that are beyond question. And it therefore is certainly one of the markets where many, especially Westerners, are very comfortable,” says one respondent. The strongest sentiment for buying in Singapore was in the apartment residential/rental sector, in which 53 percent of the respondents advised buying; while 34 percent advised holding. Less than 13 percent recommended selling apartment residential properties. Nearly 52 percent recommended buying office space, 29 percent advised holding, and 19 percent, selling. More than 48 percent recommended buying hotel space, 38 percent advised holding, and 13 percent, selling. In the retail market, 45 percent of the participants advised buying; 41 percent, holding; and 13 percent, selling. In the industrial/distribution sector, more than 44 percent recommended buying; nearly 48 percent, holding; and 14 percent, selling.
Like Singapore, Tokyo was cited as presenting very low overall risk as an investment market. Characterized by survey respondents as a city with a tight inventory supply and low vacancy rates, Tokyo is a market that is starting to draw more institutional money, in addition to the opportunistic funds that have been invested over the past five years, the report says. One interviewee predicts “recovery to continue in the next five years. The current strategy is to buy and hold…We also expect continued flow of capital, more REITS (real estate investment trusts) with Japan assets in both the Japan stock market and other markets such as Singapore and Australia.”
The strongest sentiment for buying in Tokyo was in the office sector, in which 62 percent of the respondents advised buying; while 27 percent advised holding. Only 11 percent recommended selling office properties. Fifty-two percent recommended buying industrial/distribution space, 33 percent advised holding, and 15 percent, selling. Fifty percent recommended buying retail space, 40 percent advised holding, and 10 percent, selling. In the apartment residential market, 50 percent of the participants advised buying; 36 percent, holding; and 14 percent, selling. In the hotel sector, 46 percent recommended buying; 39 percent, holding; and 15 percent, selling.
The Asia Pacific cities included in Emerging Trends fall into different categories, based on each market’s investment and development prospects, and on respondents’ opinions about buying, holding or selling specific property types within each market. In the first category are the top five investment cities – in addition to Shanghai, Singapore and Tokyo, this group includes Osaka, in fourth place; and Hong Kong, in fifth. All are listed as cities in which to hold or buy most property types. In the second category are the strong development markets: Ho Chi Minh City, in first place, followed by Shanghai, Singapore, Bangalore and Mumbai. Compared to last year, the report notes a stronger correlation in this year’s survey between the prospects leading to a high rating for investment versus a high rating for development. For instance, numerous interviewees pointed to the declining imbalance between the supply of and demand for investment properties. As a result, more respondents are investigating development opportunities in top-ranked investment markets, the report says. “Due to the limited number of investment properties available, riskier development projects will continue to be popular,” contends an interviewee.
In terms of favored property types, the hotel sector is ranked highest in terms of investment prospects in Asia Pacific cities, with demand driven by both business travel and rising tourism. Ho Chi Minh City is listed as the top Asia Pacific city in which to buy hotel space, followed by Bangalore, Shanghai, Mumbai and New Delhi.
The second favored property type for investment is the office sector, characterized as fiercely competitive. Ho Chi Minh City is again listed as the top market in which to buy such properties, followed by Mumbai, Tokyo, Bangalore and New Delhi. Retail, described as very dynamic, ranks as the third most favored property type; and Ho Chi Minh City, Mumbai, New Delhi, Bangalore and Shanghai are listed as the top five markets in which to invest in retail properties. “Everywhere there is a drive for diversification of retail concepts – big box, factory outlets, and specialty retailing,” notes one respondent.
The industrial/distribution sector, while not as glamorous as class A office buildings or high-end retail, will be recognized as a “major property type” next year, the report predicts. Currently, it is ranked fourth in offering investment potential, with Ho Chi Minh City, Shanghai, Bangalore, Mumbai and Guangzhou ranked as the most promising markets for that category.
The residential for-sale and apartment residential rental sectors ranked fifth and sixth, respectively, for investment opportunities; however, based solely on development prospects, the residential for-sale sector ranked first of any property type. “Urbanization in Asia Pacific property markets is a self-fulfilling economic factor for the supply and demand for residential space,” the report says. “As the percentage of the population moving to cities increases, demand for residential property grows…There is a clear message than understanding the current and future trends of apartment or residential segmentation, such as low-income, middle-income, or luxury residential, is critical in sustaining the apartment sector.” The most promising markets for apartment rental investments: Ho Chi Minh City, Mumbai, Bangalore and Guangzhou.
“As the years go by, Asia Pacific property markets will integrate more fully with the global economy, and, just as importantly, global property capital markets,” the report says. “If the quality and quantity of research, business intelligence, and transparency improve, then the atypical puzzles and learning curves of the marketplace will be replaced with maturity.”
The Urban Land Institute ( www.uli.org ) is a nonprofit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in sustaining and thriving communities worldwide. Established in 1936, the Institute has more than 38,000 members representing all aspects of land use and development disciplines.
PricewaterhouseCoopers ( www.pwc.com ) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 140,000 people in 149 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.
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