Money into Property 2011: Asia Pacific drives global property markets back to growth

01 June, 2011

  • Asia Pacific invested stock rose 14% in 2010 and is forecast to surpass the US by year-end 2011. China and Australia have been leading the region’s growth
  • Asia Pacific is now the most actively traded region with transaction volumes doubled in 2010 to USD158 billion and the region is expected to remain at record levels in 2011
  • China maintained more than half the share of Asia Pacific’s transactional volume at 57% in 2010

Asia Pacific’s momentum is expected to continue on the back of strong economic growth, lack of legacy debt issues and strong investor interest

The recovery in global real estate is being driven by Asia Pacific with its increase of 14% in invested stock during 2010, according to DTZ’s flagship ‘Money into Property’ report. This is in contrast to no real growth in the US and Europe (European stock did grow in local currency terms). Consequently, global growth was 3.4% in 2010 following a 3.0% decline in 2009. Asia Pacific’s exceptional growth is forecast to continue into 2011 with a further increase in invested stock of 15%. Asia Pacific’s growth in stock will be driven by both a strong development pipeline and an increase in capital values. This will move the region past the US to become the second largest commercial property market globally, after Europe.

Within the region, growth in China and Australia (24% and 25% respectively, in US Dollar) has led Asia Pacific’s region growth. China has now joined the US and Japan as the third market globally with total invested stock surpassing USD1 trillion.
Contrary to global deleveraging in 2010, Asia Pacific has recorded an increase in its loan to value ratio (LTV) which is driven by China’s growth of 26% in private debt. Hans Vrensen, Global Head of Research at DTZ, comments: “The growth in public debt in Asia Pacific in 2010 was dominated by activity in China where public debt rose by over 60%. Whilst governments across the region attempted to slow bank lending to real estate, property companies and developers, particularly in China and Hong Kong, are circumventing restrictive lending policies by issuing property bonds. This type of innovation is expected to further APAC markets’ momentum, especially in developing countries.”

Recent DTZ research reveals that globally there is USD986 billion of capital available for investment in commercial property over the next three years . According to the latest Money Into Property report, in fact, global investment volumes increased 76% to USD342 billion in 2010, the highest level since USD597 billion in 2007. The biggest portion is Asia Pacific, where transactional levels more than doubled to a new record, up 116% to USD158 billion, surpassing Europe for the first time. This record was driven by increases in China and Japan in the first half of 2010.

Despite the introduction of cooling measures in many countries around the region investors returned enthusiastically to commercial property. China recorded a total transaction consideration (of buildings only) of USD90 billion in 2010, and maintained its share of regional transactional volumes capturing 57% in 2010 compared to 56% in 2009.

David Ji, DTZ’s Head of Research, Greater China, said: “Investment transaction volumes in Asia Pacific are expected to maintain this record level in 2011, with the market remaining active. The impact of economic stabilising policies across the region and the earthquake in Japan limiting further volume growth for 2011.”

Taking a closer look at the property investment transactions in China last year, a total of 1,515 transactions (each with a consideration of at least USD1 million, including land sales and transactions of buildings) involved a total consideration of USD157 billion. This represented a rise of 58% from a year ago in terms of number of transactions, and up 94% for the consideration. Throughout the year, transactions in second tier cities outnumbered those in first tier cities in the number of transactions and accounted for about 60% of total consideration. The trend continued in Q1 2011.

Transactions were spread across different sectors, with mixed-use properties and residential being the dominant categories that accounted for about 80% of the total consideration.

Francis Li, DTZ’s Head of Investment, Greater China, commented: “Residential continued to dominate the market in 2010, but in face of the increasing policy control to cool the housing market, investors are showing a great interest in mixed-use and retail investment. Given the economic development and as the property market matures, we expect that the share of investment on commercial properties will grow.”

In 2010 domestic investment accounted for 94% of the total consideration. Domestic investors have a better grasp of market information and they have been actively expanding. Foreign investors have been active too, with their consideration rising from USD5 billion in 2009 to USD9 billion in 2010, though their share in total consideration remained at 6% in both years. Foreign investors generally favour land sales to purchases of buildings. For both domestic and foreign investors, a strong prospect of rental growth in China’s developed markets supported by increased occupier demand from expanding domestic companies and multi-nationals locating to China will further improve the prospect of commercial property investment.

David Ji concluded: “Despite any future policy changes, we expect Asia Pacific’s momentum to continue on the back of strong economic growth, lack of legacy debt issues and strong investor interest.”

 


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