Asian real estate trends in 2016 are predicted to mirror those of 2015, with substantial capital flowing into prime properties and investors seeking refuge in the region’s most established and stable markets, according to the Emerging Trends in Real Estate Asia Pacific 2016 report, a joint publication by the Urban Land Institute (ULI) and PwC.
Japan and Australia remain top choices for real estate investment and development. Tokyo, Sydney, Melbourne, and Osaka secured four of the top five positions for promising markets in the Asia Pacific region, with Ho Chi Minh City rounding out the list in fifth place.
“Years of accessible capital from global central banks have shaped Asian real estate markets. While the easing monetary policy in the US may be ending, Japan and the European Union continue to inject liquidity, and many Asian countries boast lower interest rates compared to the previous year,” remarked Raymond Chow, ULI North Asia Chairman and Executive Director of Hongkong Land. He added, “This, coupled with capital allocation from both regional and international institutional investors, is leading to increased competition for a limited number of real estate assets, ultimately driving up prices across most markets and sectors. This trend is likely to persist throughout 2016, with a focus on markets that offer stability, low risk, and satisfactory returns.”
KK So, PwC’s Asia Pacific Real Estate Tax Leader, noted, “As the Asian real estate bull market enters its seventh year, investors are encouraged to divest assets acquired following the global financial crisis. Our findings suggest a growing trend of investors opting to capitalize on gains from recent years.” He added that lucrative opportunities exist in Japan, where affordable debt and high leverage can yield significant returns, and in China, where developers seek capital in a liquidity-constrained environment. Concurrently, investors wary of a potential market peak are drawn to the security of core assets in major cities.
Regarding capital flows, the report highlights a continuous increase in Asian capital directed towards real estate markets globally. This trend is primarily driven by China, where institutional, corporate, and private investors are acquiring assets mainly in Australia, Japan, and the US.
Emerging Trends offers insights into Asia Pacific real estate investment and development trends, real estate finance, capital markets, and sector-specific and metropolitan trends. The report is based on the perspectives of 343 real estate professionals, including investors, developers, property company representatives, lenders, brokers, and consultants.
The top five investment markets for 2016 are:
Tokyo, holding the top spot for both investment and development, is highly attractive to investors. As Asia’s leading gateway city, it possesses unparalleled market depth and liquidity. However, despite robust activity fueled by easy credit and low-interest rates, some experts are cautious about a potential market slowdown. While the short-term outlook remains positive, the report warns that a slowdown accompanied by price stagnation or decline could pose challenges for borrowers needing to refinance high loan-to-value loans in the future.
Sydney, ranked second for both investment and development, attracts institutional investors pursuing core office properties. The scarcity of such assets and the influx of new investors, combined with a weaker local currency, contribute to strong property yields. The city’s real estate market also benefits from Australia’s economic transition from a commodities-based model to a service-oriented one. Investor interest is further piqued by a significant number of office-to-residential conversions and redevelopment projects.
Melbourne, ranked third for both investment and development, is perceived as mirroring Sydney’s market environment. Despite experiencing double-digit price increases in 2015, properties in Melbourne remain more affordable compared to Sydney, largely due to greater land availability for central business district (CBD) expansion.
Osaka, ranked fourth for investment and fifth for development, continues to reap the benefits of Tokyo’s overflow demand. The report highlights that the market’s growth “signals the end of a prolonged period of oversupply that previously impacted the city.”
Ho Chi Minh City, securing fifth place for investment and fourth for development, has rapidly climbed the ranks from its 19th position in 2014. This surge is attributed to the government’s successful efforts in stabilizing the local currency, controlling inflation, and reviving real estate lending by banks. Furthermore, improved market accessibility for foreign investors is drawing significant interest, potentially boosting both residential and commercial property purchases.
Throughout the Asia-Pacific region, the industrial/logistics sector maintains its position as the most sought-after property type for investment. “The scarcity of modern distribution facilities across almost all markets ensures continued demand growth, particularly in China,” the report states. It underscores that this demand is driven by the need for swift delivery fueled by the e-commerce boom, expansion in the cold-food chain, and changes in regional manufacturing, as operations shift to emerging markets like Vietnam.