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Friday Digest Special – Asia Real-Estate in 2013 – Predictions & Prospects

by Ziv Magen on January 11, 2013 · 3 comments

  
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Having covered the major trends and events of Asia’s property markets in the last year as evident in news and analyst reports from around the globe, from both the established markets and emerging markets perspectives – it’s now time to take a peek into our crystal balls, and see what the spirits, oracles and visionaries of global real-estate are predicting will take place in the coming year of 2013.

The Big Picture

Generally speaking, since recovery in the US seems to be on a very mild slope, and the Eurozone is still deeply mired in debt, as previously mentioned – all indicators seem to point to the fact that Asia will continue to be favoured by global property investors world-wide, as it was in 2012 – although with less fervour than in 2012, mainly due to curbs and cooling measures placed on major economies in the region such as China, Singapore and Hong-Kong, which will most likely act as buffers, to try and prevent super-heating in those markets – with the result being that South-East Asia, and in particular Indonesia, Malaysia and Thailand, are being hailed these days as favourite destinations for capital flow.

The virginal and unstable nature of these markets, however, comes at a price, as covered extensively in last week’s post, and with a clear and flashing neon sign of “Caveat Emptor” – Buyer Beware – for all but the most well-established and localised players. And while a luxury pad in Bangkok might be a nice little trophy asset for high-net-worth individuals, with an all but guaranteed capital growth potential tag attached – one would do well to think carefully before putting their hard-earned money into a new mid-market residential development in the city, considering the vast numbers of empty apartments these freshly built condos seem to be sporting these days, as one reader testifies.

Major Highlights

Screen Shot 2013-01-10 at 9.45.17 PM
Japan continues to be the speculation-wary global investor’s cash-flow haven, with its super-safe, reliable tenant base and world’s highest rental yields – whether capital growth will remain stagnant, as it has been for the past two decades, or whether inflation and growth will indeed return to the world’s third-largest economy, as many seem to believe will happen this year, still remains to be seen.

China, now stable and more promising than ever, with what seems to be an increasingly in-control regime in full swing, and fears or uncertainty and rampant corruption slowly receding, will also draw major capital this year – although the sheer size of the country and language/cultural barriers dictate that deal-mining in Asia’s “top-dog” economy remains a huge and time-consuming task.

And what everybody and their dog seems to agree on is that Indonesia, and in particular its capital of Jakarta, is the winning bet for the upcoming year – this in spite of the fact that the previous “boom” in the country, which took place about a decade ago, did not end well, and left projects unfinished, billions of dollars in investments lost, and a sharp drop in occupancies, which Indonesia has only began to recover from in the last year or two. Nevertheless, the jury appears unanimous in its vote that, this time around, things are bound to be different.

As always, time will tell – all we can do in the interim is take a closer look at -

The Drill-Down

Price Waterhouse Coopers’ Bet – Japan, Australia & Distressed Markets
In their comprehensive analysis labelled “Asia-Pacific Trends in Real-Estate, 2013″, the world’s largest accounting and professional services firm highlights Japan, and in particular Tokyo, along with Australia, as the preferred destination for property investment in the up and coming year – mainly due to lack of confidence in other markets, beset with uncertainty throughout 2012. The general global opinion being that Japan has finally “bottomed out”, and that Australia has a severe lack in local capital to accommodate its’ bustling property market, alongside the assumption that institutional investors will continue showing increased interest in real-estate, are the two major causes underpinning this prediction, according to the report.

More opportunistic investors, according to PWC, will find their share of distressed opportunities in both markets as well, as well as in China, and also in logistics and senior housing projects all throughout the region. Thailand, Indonesia, Malaysia and China’s secondary cities are also hailed as attractive, albeit far more speculative, possible moves for the year.

Jones Lang Lasalle’s Bet – China & Indonesia

The Asia-Pacific offices of US based commercial property giant JLL also see Indonesia and China, particularly Jakarta, Beijing and Shanghai, as where the money will go this year, with other emerging markets in South-East Asia taking central stage again. Pointing out that Singapore has narrowly escaped recession in the last quarter of 2012, and surprisingly placing far less emphasis on Japan, Hong-Kong and Australia, except on the retail front, the company also points at India, and particularly Pune, as having potential – although, unfortunately, even JLL, heavily vested in the sub-continent, did not fail to mention the country’s lack of transparency and regulation as a major turn-off for its clients world-wide.

The company does place SOME emphasis on prospects in Australia, and in particular the Brisbane “fringe” (outer CBD) office market and Sydney industrial developments – all in all, however, the company’s general advice regarding the land down under, in contrast to PWC’s opinion, is that 2013 will bear the mark of oversupply, with tenants being able to pick their price almost everywhere across the continent, barring Perth, the capital of Western Australia, where demand remains high. This sentiment has been echoed by local Australian property analysts, who claim that Victoria state government and developers are concluding to increase supply in Melbourne, one of Australia’s largest cities – courting overseas investors in lieu of local capital (echoing PWC, but drawing a different conclusion altogether) – this in spite of a lack of demand and a bubbling property market, which sees many contracts fall through prior to completion, due to the gap between asking prices and official evaluations.

In the Philippines, where JLL is also strongly active, representatives mention an oversupply of residential units, as well as a strengthening local currency, diminishing the purchasing power of overseas Filippinos, normally big players in the market, as potential activity dampeners.

Knight Frank’s Bet – Thailand, Indonesia and China

The UK/NYC global real-estate consultancy firmly believes in the prospects of capital cities Bangkok, in Thailand and Jakarta, in Indonesia, where they predict a 10-20% rise in prices for 2013, as well as in Beijing, China’s second biggest city, where they forecast a 5-10% increase – this in sharp contrast to Shanghai, the country’s capital city, where they believe prices will drop by approximately 5%.

Knight Frank also advises to steer clear of Hong-Kong, where an imminent property bubble is destined to burst in the coming year or two, and Singapore, due to the strict regulations, cooling measures and curbs implemented, and the fear of more of the same to come, as prices stubbornly continue to creep upwards, albeit slowly, in two of the world’s most expensive property arenas.

And Now For The Bad News

Screenshot 1:10:13 9:46 PMNot everyone, however, sees the Asia-Pacific region through the same rose-coloured glasses. A US firm under the umbrella of Chase International, as well as various, smaller and independent analysts, claim the Asian property boom scenario is all too familiar – and that the current atmosphere is much like it was in 1997, prior to the “great Asia financial crisis”, which was also spear-headed by a booming property market – then turned into a huge slump that resulted in a major economic downturn all around the region. In their opinion, buyers, who have done well on their investments in 2009-2011, are again losing sight of supply and demand, investing in potential and speculative profits which may or may not occur as a result of urbanisation and an assumed continued crisis in the West – losing sight of sure and tested strategies such as rental returns and long-term capital growth potential in the process.

And almost everyone seems to agree that Vietnam and the Philippines, in particular, are two of the countries that should be avoided for the time being – the Philippines, as mentioned in previous digests, due to its rapid and unsustainable growth, as well as problematic social infrastructure, and Vietnam due to lack of regime and policy stability.

That’s it for our three-part yearly summary – hope you enjoyed it. From next week we’ll return to the usual weekly news compilations and reporting. As always, would love to hear your thoughts, here or in private correspondence. :)

Here’s to a lucrative and profitable 2013 – Happy Investing!!!

(Partial List of Sources – “Property Report“, “Iexpats“, “Price-Waterhouse-Coopers“, “The Telegraph“, “Jones Lang Lasalle, “Property Wire“, “Property Observer“)

(Pic 1 – Sunrise over Shinjuku by Kimon Berlin, Pic 2 – A Giant “Gundam” Robot Statue in Odaiba, Tokyo / Ari Helminen, Pic 3 – Bubbles / “Stellajo” )
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{ 3 comments… read them below or add one }

Arthur Field July 5, 2013 at 2:06 pm

Asia is the place to watch, especially Japan. Its rise from stagnation from 2012

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Arthur Field July 5, 2013 at 2:09 pm

Asia is the place to watch, especially Japan. Its rise from stagnation from 2012 has a lot to do with the election of the LDP party in Japan whos promises included aggressive
policies for monetary easing and fiscal stimulus aimed at ending deflation,
weakening the Japanese yen. So far they are right on the money and the Japan economy proves it! Thanks for this article Ziv

Reply

Ziv Magen July 5, 2013 at 3:43 pm

Thanks, Arthur, glad you liked it. Japan is also where our clients and us are primarily positioned these days – I completely agree.

Reply

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