China’s economic turmoil is shaking up the real estate industry, especially on Asian markets. According to Real Capital Analytics, commercial property sales in Asia fell 41% in dollar terms in H1 2015 compared to the same period in 2014. The loss is largely due to a decrease in land for sale in China, but also the 13% decline in investment volumes and weakened Asian currencies against the US dollar. According to PwC, a financial services company, the largest Asian markets in terms of real estate investments as of 2015 were Tokyo ($15.7B), Hong Kong ($4.1B) and Shanghai ($2.7B).
Key investment drivers in Asia
Weakened national currencies and falling interest rates on loans in some countries have made investments attractive.
- Cheaper loans. Certain countries have lowered interest rates and eased requirements on down payments since 2014. For example, in February 2016, the People’s Bank of China announced it was reducing the down payment threshold for
first-homepurchases from 25% to 20% and from 40% to 30% for second properties. Interest rates have also fallen six times since 2014. In January 2016, the largest Japanese banks reduced variable mortgage rates to their lowest in history (0.625%). Loan-to-valueratios are now as high as 85–90%of the property value. Easier lending terms aim to consolidate internal demand for property with the hope that market prices will grow over the longer term.
- Currency devaluations. Currencies in Indonesia, Thailand and Malaysia fell by
10–20%in 2015. This had a significant effect on local property buyers, who became less active, but simultaneously boosted demand from foreign investors, especially those with hard cash.
Nevertheless, Asian markets are still less attractive than their European and American counterparts because of low yields on property investments. For instance, office and residential property in the central business districts of Hong Kong, Taipei and Tokyo earn as little as
Office property markets and yields
In Q3 2015, the Rental Rate Index in Asia gained 1.4% and the average vacancy rate rose by 0.1% according to Knight Frank. However, certain markets are at different stages: in Beijing the decline of rental rates has slowed but in Hong Kong and Mumbai, growth rates are rising. In New Delhi and Taipei rates are still falling while in Jakarta and Singapore, their decline has accelerated.
As a general rule, markets with low office vacancy rates have low yields. For instance, in Hong Kong only 6.5% of property is vacant and yields are just 2.8%, but in New Delhi almost
Key figures of Asia’s leading office markets
USD per sq m
In 2016, global economic instability will force corporate tenants to plan their expenses more carefully and investors to choose the safest options. The strength of the euro and US dollar should attract foreign investors to Asian office markets in spite of the Chinese slowdown as international companies will continue to develop on the Middle Kingdom’s markets. Experts expect office premises in the country’s largest cities, especially Shanghai and Beijing, to be in demand.
Retail property markets and yields
Retail property value growth in Asia is slowing down, according to CBRE. Growth dropped from 6.6% in 2014 to 1.5% in 2015. At the same time, Cushman & Wakefield announced that rental rates were growing between June 2014 and June 2015 in Beijing and Shanghai. However, in Hong Kong they decreased considerably (−13.9%) due to the cautious behaviour of retailers.
Although rent is now cheaper, the Hong Kong Causeway Bay is still the most expensive shopping street in Asia and the second most expensive worldwide after Fifth Avenue in New York. Shops in Causeway Bay let for over $25,000 per sq m per year. The cheapest rental rates (in markets considered by Cushman & Wakefield) lease for an annual rate of about $300 per sq m on Satellite Road in the Indian city of Ahmedabad.
Rental rates and yields for the prime shops in Asian cities
|Hong Kong||Causeway Bay||25,815||−13.9||3.3|
|New Delhi||Khan Market||—|
|Shanghai||West Nanjing Road||4.5|
One of the key sales drivers in Asian metropolitan cities (i.e., Tokyo, Seoul and Taipei) is the increasing number of tourists coming from mainland China. Consequently, if the Chinese economy continues to stumble, shops in these locations will no doubt see their retail sales volumes fall too.
According to Cushman & Wakefield experts, China has the potential to become the world's largest retail property market by 2018. The country's middle class and domestic consumption are growing regardless of the economic situation and lower export activity. The Chinese market is remarkably flexible and many companies are changing their retail formats in response to the current times. For instance,
Hotel property markets and revenue per unit
Demand for hotel accommodation in
The greatest tourist economy remains Hong Kong, which received 34.3 million visitors between July 2014 and July 2015. This city is particularly successful with business tourists visiting conferences, exhibitions and other events every year.
Key figures of the leading Asian hotel markets
|Ho Сhi Minh Сity||66.2|
Despite the negative factors, JLL experts forecast positive growth for the region’s hotel property markets. Demand for rooms should grow thanks to various government initiatives. For instance, Beijing will host the 2022 Winter Olympics and a Universal Studios theme park is set to open in 2019, not to mention the construction of a second airport the same year. Shanghai will benefit from the opening of the Shanghai Disney Resort theme park in 2016, while India’s new electronic visa system for 113 nationalities will stimulate inbound tourism. Jakarta is also expected to sign visa waiver agreements with over 45 countries.
Residential property markets and yields
Weakened currencies like the Indonesian Rupiah (IDR), Thai Baht (THB) and Malaysian Ringgit (MYR) made property in these countries cheaper for foreign buyers with dollar incomes according to the Wall Street Journal. As reported by Exotiq Properties real estate agency, the average property sale price in Bali dropped from $750,000 in 2014 to $500,000 in 2015 and prime residential real estate lost
Another international real estate agency, Engel & Völkers Phuket, announced that Thai homes and flats became
The Hong Kong market, however, is suffering from China's economic situation, which has induced excess property supply. According to Centaline Property real estate agency, January 2016 sales were the lowest on record since 1991. Experts forecast that, in 2016, property in Hong Kong could get 20% cheaper in total.
Residential property prices and dynamics in Asian cities
(Sept 2014 –
Sept 2015) %*
One of the main risks for residential property markets in Asia this year is America’s possible base interest rate increase: local Asian banks could also raise their rates if the U.S. Federal Reserve System does.
Where to invest
According to JLL, the most transparent and secure Asian markets are Hong Kong, Singapore, Malaysia and Japan. China, the Philippines, Indonesia, Thailand, South Korea and India are considered "semitransparent". Among the countries with low transparency, experts place emphasis on Vietnam.
In view of the sluggish world economy, investors tend to choose reliable,
As for the investments in provincial Chinese cities, they are risky (except Nanjing, Xiamen and Wuhan) where supply exceeds demand and could take years to integrate the redundant construction projects.
Top 10 Asian cities for real estate investment in 2016
|3||Ho Chi Minh City|
The majority of investors surveyed by PwC named Jakarta, Tokyo and Ho Chi Minh City as suitable markets for office and residential property investments in 2016. Mainland China on the other hand, excluding Shanghai, is considered the best selling location.
Types of property to buy and sell in Asia in 2016
|Property type||Where to buy||Where to sell|
|Office||Jakarta, Ho Chi Minh City, Tokyo||Provincial Chinese cities, Guangzhou, New Delhi|
|Retail||Tokyo, Ho Chi Minh City, Osaka||Provincial Chinese cities, Shenzhen, Guangzhou|
|Industrial||Jakarta, New Delhi, Shanghai||Provincial Chinese cities, Beijing, Shenzhen|
|Hotels||Tokyo, Osaka, Seoul||Provincial Chinese cities, Shenzhen, Beijing|
|Residential||Tokyo, Jakarta, Ho Chi Minh City||Provincial Chinese cities, Shenzhen, Guangzhou|
The Asian markets have positive forecasts for 2016 according to Cushman & Wakefield. Low inflation could mitigate consequences of the Chinese slowdown, legislative proposals are set to help revive economies in Japan and South East Asia, while reforms by Indian Prime Minister Narendra Modi could stimulate economic growth. Considering the favourable economic forecast, Asian real estate market investments are expected to grow. Cushman & Wakefield estimates that capital investments will increase by up to 3% on average, with major rises anticipated in China and Singapore. According to PwC, over 80% of their survey respondents believe that real estate businesses in Asia can increase their earnings in 2016 to “average” or “fair” — with 11% of them expecting an exceptional year.
Yulia Kozhevnikova, Tranio