With continued growth in the global economy, economic acceleration has improved prospects for occupier property in most Asian markets. Against this background, demand for investment property in Asia has stayed firm, with deal volumes rising 19 percent, year on year in H1 2017 to $61.4 billion.
Most key Asian markets, including Shanghai, Hong Kong and Singapore, have seen increased investment activities across many sectors. Hong Kong and Singapore rose to become, respectively, the first and fourth ranked APAC urban investment markets in the first half of this year. While Shanghai was ranked third place in H1, with far higher deal volumes than any other Chinese city.
Investment demand shows little signs of slowing. What has partly bolstered Asian property markets is the US dollar weakness that has reduced upward pressure on interest. Hence yields will continue to remain low and are unlikely to rise over H2. In some cases, cap rates have dropped to close to costs of funds or even below it. Net yields on prime grade office property in major Asian investment centers have now fallen to between about 2 percent and 4.2 percent. Retail and industrial yields are higher but likewise flat or falling.
One of the key drivers of investment demand in Asia this year has been mainland Chinese capital, even with the restrictive outbound capital controls. The focus of Chinese investment in foreign property seems to be shifting from the US to Asia. Despite capital controls, we expect continued Chinese interest in APAC gateway cities in the near term. Thereafter, we foresee material Chinese investment in ‘Belt & Road’ markets in South East Asia. This should be a long-run trend.
We also expect investment demand to remain firm from non-Chinese sources, including both domestic investors and cross-border investors such as large property developers and financial institutions in Hong Kong and Singapore. In addition to improved economic growth prospects, persistent low interest rates are an important driver of confidence for such investors.
To read the full report by Colliers, titled Insights on Asian Investment Property, click here.