Bangalore, Mumbai, and Delhi have slipped sharply to the 19th, 20th and 21st positions respectively in the list of 22 investment destinations covered by the Emerging Trends in Real Estate® Asia Pacific 2013, published by the Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC). In the previous report of 2012, these cities were placed at 10th, 15th and 12th rank respectively.
While Bangalore is perceived to be a mature market and has demonstrated fairly stable pricing and reasonable absorption trends, Bangalore’s over-reliance on the sluggish global IT industry translates into low growth potential in the medium term. Mumbai is plagued with over supply across asset classes, resulting in record levels of vacancy and stagnant yields. The report, however, casts a positive light on Delhi and the surrounding NCR in view of the expected master development plans for Delhi, Gurgaon and Noida, perhaps indicating a flight of capital from Western and Southern India to the North in the medium term, the report pointed out.
The widely anticipated forecast provides an overview of Asia Pacific real estate investment and development trends, real estate finance and capital markets, and trends by property sector and metropolitan area. It is being released today at a program in Mumbai.
Gautam Mehra, Executive Director at PwC India, said: “While Indian real estate may currently be grappling with certain socio-political and economic issues, particularly rising inflation; uncertainty on fiscal policies; and subdued interest from opportunistic investors, there appears to be light on the horizon.
India’s favourable demographics and inherent, latent demand continue to be redeeming factors. Several micro-markets continue to provide suitable investment opportunities for investors and end-users alike.
The need of the hour is to deliver focused political and economic reforms. The recent decision to permit foreign investment in multi-brand retail, for instance, should lend a spark to the dormant retail real estate space. The authorities have also shown intent to adopt clear, singular stands on contentious tax and regulatory matters, thereby soothing the frayed nerves of foreign investors.
From a regulatory stand-point, the introduction of the Alternative Investment Fund (AIF) regime has sought to streamline and regulate myriad investment schemes, in a bid to boost investor confidence. One area that is yet to be developed is Real Estate Investment Trust (REIT) regulation, which could provide an additional exit route for investors and enable retail money to be channelized into the sector through a regulated network,” Mehra added.
The report stated that for Asia Pacific as a whole, steady economic growth, rising incomes, and stable or increasing property values are all contributing to an overall sense of optimism. However, the outlook is tempered by growing concerns among investors that prime assets in key real estate markets are becoming overpriced. For instance, capitalisation rates across Asia remain more compressed than in many western markets, and yields for core office stock in cities such as Beijing, Hong Kong and Singapore are returning as little as two percent.
“With high rents, high capital values, low yields, and an abundance of local capital, many international investors are struggling to see attractive investment opportunities in Asia Pacific’s prime real estate markets,” commented ULI Trustee and ULI North Asia Vice Chairman Richard Price, Chief Executive, Asia Pacific for CBRE Global Investors. “As a result, investors are expanding their horizons as they seek compelling investment opportunities. Some are looking at frontier markets such as Indonesia, while others are revisiting often overlooked capitals such as Kuala Lumpur and Bangkok, which explains the strong showing for these locations in this year’s report. Secondary markets such as Kowloon in Hong Kong and second-tier Chinese cities are also experiencing increased interest from international buyers. At the same time, core investment markets in many mature, western markets are seeing a surge in demand from newly formed Asian Institutional Investors seeking to capitalize on the post-global financial crisis corrections there.”
Top Investment Markets for 2013
Overall, respondents were more bullish on the prospects for individual cities, awarding higher scores than in the previous two years. The top five investment markets for 2013 are predicted to be:
In addition to Shanghai, other cities in China – including several second-tier cities as well as Beijing – were placed in the top ten listing for both investment and development prospects. Despite concerns related to rapid growth and surging prices, the report points out that it is not unusual for emerging markets to witness unexpected price movements, and that such shifts must be viewed within the context of local market conditions.
Japan, notes Emerging Trends, continues to recover from the earthquake and tsunami of March 2011; however, a number of investors are seeing potential in the logistics sector as the country rebuilds its distribution infrastructure. While Tokyo is ranked 13th for investment prospects and 18th for development prospects, many investors feel the city’s outlook is improving. It is seen as a magnet for foreign investment, with core funds looking at the office sector, and more opportunistic investors heading for the residential sector.
Emerging Trends in Real Estate® Asia Pacific 2013 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 400 internationally renowned real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants.
About the Urban Land Institute
The Urban Land Institute (www.uli.org) is a global 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 nearly 30,000 members representing all aspects of land use and development disciplines.
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