Asian real estate investment turnover up 215%

Singapore witnessed strong rebound in investment activity as it posted 24% rise in transaction turnover volume.

The Asian real estate investment market remained buoyant during the first quarter as investor sentiment remained largely positive, and investors continued to demonstrate cautious optimism. The steady flow of small and medium sized transactions witnessed in the latter half of 2009 continued to feed through into the year's opening three months. Given the relatively low level of trading activity at the beginning of 2009, in the first quarter total direct real estate investment in Asia jumped 215% on a year-over-year basis to an estimated US$16.5 billion, according to CB Richard Ellis' Asia Investment MarketView report for Q1 2009.

Despite the strong growth in transactions, as measured on a yearly basis, transaction volume slipped in China, Hong Kong and Taiwan on a quarter-over-quarter basis. This dip in Greater China investment activity was attributable to the fact that investors began exhibiting a more cautious stance in response to the change in government policy settings with respect to the rapid run-up in prices in local real estate investment markets.

A drop in transaction volume in Taiwan was partially attributable to the limited availability of investment-grade properties for sale. The US$7.8 billion worth of transactions completed in Greater China during the first quarter was 19% lower than the amount recorded in the fourth quarter of 2009. However, elsewhere in Asia, Japan, Korea and Singapore witnessed a strong rebound in investment activity on a quarter-over-quarter basis, with the volume of investment transaction turnover in these markets rising by 45%, 32% and 24%, respectively.

Throughout Asian investment markets, transactional activity was largely driven by domestic investors, who accounted for 72% of total investment volume. However the US$12 billion worth of transactions completed by domestic investors was US$2.1 billion lower than the previous quarter, this shift, in turn, reflected the rising proportion of cross-border activity during the review period and the return of international real estate funds.

Prime office properties continued to attract the most interest during the first quarter, accounting for over US$5.8 billion of investment in the first quarter of 2010, 35% of the total volume recorded. Office properties accounted for seven of the ten largest transactions witnessed during the period.

Residential and retail properties continued to attract similar proportion of investment from investors, residential properties accounted for 13%, with the retail sector comprising 14% of the total investment volume. Despite the relatively high proportion of market share, the US$2.1 billion worth of residential transactions was 48% lower than the amount recorded in the fourth quarter in 2009. To a certain extent, this contributed to the tightening of monetary policy and other fiscal and bank regulatory measures which have recently been adopted by Asian governments seeking to cool down local residential markets.

The revival in Asia business and tourist travel was reflected in Q1 in the surge in activity in the hospitality sector, which exhibited a strong growth during the period under review with a total of seven hotel transactions worth a combined total of US$590 million having been concluded during the first quarter, this sum standing in contrast to the US$62 million and US$26 million recorded in the first quarter and fourth quarter of 2009, respectively.

Reflecting a revival of exports and continued expansion of industrial output within the region, the industrial property sector in Tokyo, Shanghai, Beijing and Hong Kong all began to see increased investment interest and the emergence of demand from both domestic and foreign investors, their interest underpinned by recent stabilisation of industrial asset prices. In the first quarter, transactions involving industrial properties rebounded strongly, climbing 21% on a quarter-over-quarter basis and accounted for a combined total of US$1.5 billion.

The continued recovery of the regional economy combined with low interest rate regimes continue to provide a favourable investment environment for real estate investors. Overall capital values are expected to stay on a steady upward trend and rental income is likely to improve in the short term. These relatively stable real estate investment market conditions will act to attract both local and international investors to place their capital to work in the region.