Friday Asia Digest – China RE Scene Stabilises | Asia REITs Beat Stocks


This week’s news items bear the mark of stability and sustained growth outlooks for Asian economies as a whole, underpinned by a robust property market, and led by China‘s modestly re-vitalised real-estate sector – while the region’s REIT market, firmly asserting itself as “the place to be” produces some spectacular numbers –

China’s New Leadership Continues to Provide Stability

While many have been entertaining thoughts about a possible about-turn in Chinese policies, which in turn may lead to either a complete collapse or a re-creation of the national property bubble and associated escalated civil unrest – China’s new leadership has perhaps surprised most of its critics by being as predictable and un-surprising as possible – which may be exactly what the country – which is the largest economy in Asia and second largest economy in the world – needs at this time.

As reported in previous digests on numerous occasions in the last year, China has implemented various control measures, from restrictions on multiple home purchases, higher minimum down payments, and the introduction of selective annual property taxes in several major cities.

These consistent measures, which in the last two years seem to have taken their toll, have slowly but surely steered the country’s property market back into what appears to be a reasonable and stable price graph, with average home prices in 100 cities rising 0.26 percent in November to 8,791 yuan ($1,410) per square metre.

And while sales transactions have recently increased, signifying renewed interest and returning confidence in governmental policies, ratings agency Moody’s, for one, does not seem to anticipate a re-forming of a property bubble, as it recently upgraded its outlook for China’s property industry to stable from negative. Real estate services firm Cushman and Wakefield seem to concur with this view, having been quoted in a report as claiming that “While the residential market is policy-sensitive, a sustainable recovery is projected for the next three years”.

Chinese developers, as could be expected, have expressed a notable lack of enthusiasm, rejecting the need for further government control measures, and urging the powers that be to remove existing cooling measures and “let the market evolve naturally”- but analysts world-wide seem to believe the new party leadership has no interest in doing any such thing, and are most likely to keep the retiring leadership’s policies in place. It was interesting to note, however, that while a year ago, Chinese leaders spoke of “keeping a tight policy in the property sector firmly in place and pushing property prices back to a reasonable level” – this year, they repeated the first part of the sentence but dropped the second part on property prices altogether. Zhang Zhiwei, chief China economist with Nomura Securities, believes that the government’s statement indicates that a modest increase in home prices next year can be tolerated (other analysts indeed predict an approximate price rise of 10%), and that no further cooling measures are planned – even as existing ones will remain in place.

Asia’s Fledgling REIT Market Outperforms Stock Markets

A report by the Asia Pacific Real Estate Association (APREA),analysing the seven REIT markets of Asia (Japan, Singapore, Hong Kong, Malaysia, Thailand, Taiwan and South Korea) notes that all the developed markets (Japan, Singapore and Hong Kong) and one of the emerging markets (Taiwan) achieved higher returns than their respective stock market. Additionally, all of the emerging Asian REIT markets had lower risk than their respective stock market, while all of the developed Asian markets plus Taiwan and Malaysia showed superior risk-adjusted performance compared to their respective stock markets.

The report’s author highlighted the volatility-resistant nature of REITs, saying that investing in them provides both liquidity from being listed, as we’ll as access to high quality real estate investment portfolios. There are currently 138 Asian REITs, accounting for 12% of the global REIT market.
The leading REIT markets are the US with 55% market share, Australia with 10% and Japan with 6%.

Global Gossip

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* Indonesia, recently hailed by many as Asia-Pacific’s top investment destination for 2013, also continues to rally, with occupancy rate of office blocks in Jakarta hitting a new record of 92.9% this year. State-controlled construction firm, Adhi Karya, has at least five property projects in the pipeline, with investment value estimated at around Rp 2 trillion (208 million USD), and Indonesia’s largest publicly traded real estate developer by assets, PT Lippo Karawaci, planning to build more shopping malls and hospitals in cities beyond Jakarta, to capitalize on an expanding middle class.

* Higher rents and strong occupancy in Asia Pacific are likely for 2013, despite the region starting to ease its rapid growth, Cushman & Wakefield announced in its Asia Pacific Office Market Forecast 2013 report. Barring any shock, the economy should generate enough momentum to push absorption gains and in turn, support high occupancies in most markets, according to the report.

* Southeast Asia, in particular, will drive the property scene ‘crazy’ within the next 10 years and Malaysia (pictured on right) will be among the best, said one analyst, referring to the huge interest generated in recent times by SEA nations like Singapore, Laos, Myanmar, Indonesia and Malaysia. The Philippines, as well, and Manila in particular, will also continue to drive foreign interest in the region, he said.

(Partial list of sources – “Property Report“, “New Straits Times“, “Live Trading News”, “Business Week“, “Channel News Asia”)

(Pic 1 – Suzhou, China / Dainis Matisons, Pic 2 – Malaysia’s Public Bank at night / Georg Wittberger)

About Author

Ziv Magen

Ziv Magen (G+) is an Australian, and has been living alternately in Japan and Australia for the past decade. "Born and bred" an IT project manager, he has made the transition to full-time real-estate investing several years ago, and subsequently opened a buyers' and proxy agency - assisting others in remotely capitalising on Asia's booming property market.

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