Capital Inflow To Asian Real Estate To Climb

Source : The Business Times, 19 June 2008

Asian market being powered by longer-term investments: report

The ongoing credit crisis in the US and Europe has put pressure on a decade of sustained growth in global real estate but the inflow of capital to Asia's real estate market is accelerating, says a report.

The report - which was released yesterday by KPMG, the FTSE group and the Asian Public Real Estate Association (Aprea) - says that Asian real estate is being powered by a combination of opportunistic and increasingly longer-term investments, coming off the back of a prolonged period of steady growth. Returns in Asia are projected to remain higher than the global average for the coming year, according to the report.

Also, it says that that the slowdown in the US and European markets is unlikely to cause an immediate negative impact on Asia in 2008 - although banks will tighten credit policies, limiting financing options for real estate investments.

'Despite the current tightening of credit by banks, the deals will continue to happen, but they may take longer, the price may cost more and lead to a temporary slowing of the supply cycle,' says Andrew Weir, partner-in-charge of property and infrastructure for KPMG in China and Asia-Pacific.

However, the current sub-prime fallout elsewhere may well act as a catalyst for the inevitable further development of Asia-Pacific as a centre of property and investment management, he adds.

According to the report, total investment in the region has continued to increase, growing by over 27% in 2007 to reach US$121 billion.

Within the region, Japan remains a dominant force, not only accounting for half of last year's real estate transactions but also experiencing the strongest growth. China also grabbed a number of headlines last year as it continued to produce attractive returns for investors.

Looking ahead, Japan continues to be viewed as an attractive market to look into, particularly for the lower-risk investor, while analysts still view China as a popular place to look at as large volumes of capital chase more limited investible stock, the report said.

Real estate funds remain the dominant source of capital for real estate investments in Asia into 2008, KPMG, FTSE and Aprea observe.

The proliferation of single-market high-return funds such as those based on China and Vietnam continue to service the needs of the short-term speculative investor. But long-term funds are generally taking a 'wait and see' approach following the dampened sentiment in US markets, the report said.

It also notes that the potential for new real estate investment trust (Reit) listings is being affected by the dull market sentiment.