Survey from ULI, PwC Names Sydney and Melbourne as Top Real Estate Investment Markets in APAC
Mumbai, November 20, 2017 – Of all the influences shaping investment flows in Asian real estate it is excess liquidity that is having the biggest effect, according to Emerging Trends in Real Estate® Asia Pacific 2018, a real estate forecast jointly published by the Urban Land Institute (ULI) and PwC. Local sovereign and institutional funds bearing stockpiles of accumulated cash are buying property, both regionally and globally, creating competition for assets that is changing investment patterns in fundamental and often unexpected ways.
Changes include the realignment of traditional risk/return classifications, changing expectations over returns, the convergence of core and opportunistic investors on the value-add space, and investor migration into alternative asset classes and new markets that in the past were of little interest, including data centers, affordable housing projects, build-to-rent (or co-living) facilities and student and senior housing.
Other areas of focus include a boom in co-working facilities, concerns about how the Asian retail sector will weather e-commerce challenges, an ongoing exodus of money from Asian institutions into international markets.
This year’s investment prospect rankings reflect the growing divergence between investment strategies as buyers pursue either growth- or yield-driven approaches. Cities that are the biggest gainers in this year’s survey are those where investors seek to maximize returns via rental growth (Sydney and Melbourne), those that look for returns that are safe and low, but still higher than yields on sovereign bonds (Tokyo), or those that tap long-term secular growth in emerging markets (Vietnam). In addition, there was a resurgence in investor sentiment toward Singapore, which appears to have found a market bottom in both the office and residential sectors. In terms of prospects for individual property types, logistics assets take pole position this year, with investors showing renewed confidence in a story of long-term structural undersupply.
“The survey results for this year’s Emerging Trends in Real Estate® Asia Pacific report show that Sydney and Melbourne appear at the top of this year’s rankings,” said Dr. Seek Ngee Huat, ULI Asia Pacific Chairman and Chairman, Global Logistic Properties. “Both cities combine the appeal of a stable investment environment with a combination of relatively good current yields and the prospect of strong rental growth going forward.”
“The unprecedented growth in capital outflows from Asian markets in 2017 almost double the outflow witnessed during the same period in 2016, with US$45.2 billion in outbound capital directed into global property assets,” said KK So, Asia Pacific Real Estate Tax Leader, PwC. “While the extent of the impact of the progressive tightening of Chinese capital controls in August 20017 remains unclear, the consensus is that overall outflows may not see a meaningful decline given firstly that sovereign and state investors will probably be unaffected and secondly that there is already a substantial body of Chinese-owned capital held outside mainland China that is not subject to the rules.”
Emerging Trends, which is being released at a series of events across Asia over the next several weeks, provides an outlook on Asia Pacific real estate investment and development trends, real estate finance and capital markets, and trends by property sector and metropolitan area. It is based on the opinions of more than 600 real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants.
Top trends in the Indian real estate market:
Discussing the impact of the recent tax reforms in India, Abhishek Goenka, Leader – Real Estate Tax, PwC India said, “The initial effects of demonetisation and GST reforms may have led to liquidity issues for the real estate sector. To an extent, the impact seems to be reflected in the investment and development prospects of the Indian cities which have moved out from the premier positions of last year. However, investment in India, specifically affordable housing, continues to be strategic in nature and offers massive scale of opportunity, a factor that makes it especially popular for funds deploying large amounts of capital.”
Mumbai’s real estate market has benefited from recent strength of India’s capital market. Absorption has therefore been strong, driven also by demand in co-working, manufacturing and services companies. Although steadily declining, office vacancy rate (approximately 17 percent) continues to very high and the city continues to lag behind in term of Grade-A stock. In the Indian logistics sector, USD 2.5 billion was invested in last 6 months. Domestic warehousing stock in India currently equivalent to 1.5 percent of what is available in China and cap rates in the area of 9 to 10 percent.
“With most high-quality pre-existing assets already accounted for, international funds are turning increasingly to build-to-core projects, affordable housing and other opportunistic investments. There is trend which is picking up at a pace never seen before in unconventional assets classes, specifically, co-working space. Recent investment in modern logistics assets, driven by the increasing demand from e-commerce and recent tax reforms, gives something like a gold rush feel to it,” said Bhairav Dalal, Partner – Real Estate Tax, PwC India.
The top five markets for investment and development in 2018:
Other top trends from the Emerging Trends survey include:
Leading buy/hold/sell ratings for the various asset classes are as follows:
About the Urban Land Institute
The Urban Land Institute is a nonprofit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide. Established in 1936, the institute has more than 40,000 members worldwide representing all aspects of land use and development disciplines, including more than 2,000 in the Asia Pacific Region. For more information, please visit uli.org or follow us on Twitter, Facebook, LinkedIn, and Instagram. For more information on ULI Asia Pacific, visit asia.uli.org or follow us on Twitter.
About PwC – Globally
At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 158 countries with more than 236,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com
PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.
For more information, contact:
Bella Xu, BlueCurrent Group, Hong Kong +852 2586 7896 (firstname.lastname@example.org)
Shaun Soh, PwC Hong Kong +852 2289 8470 (email@example.com)
Gayatri Ganesh, PwC India +91 8454 931 222 (Gayatri.firstname.lastname@example.org)
© 2017 PwC. All rights reserved