The unleveraged return on direct property investments in Asia fell to 6.7 percent in 2012 from 7.9 percent in 2011, reflecting primarily a sharp contraction in capital returns and market slowdowns in China and Hong Kong.
According to the newest IPD Pan-Asia return indicator, across the Asia-Pacific (excluding Australia and New Zealand), income return on average remained about the same. In 2012, income returns averaged around 5.5 percent, as compared to 5.6 percent in 2011. Income returns from Asian real estate have remained consistent for the past six years, according to IPD research, with only a slight dip to below 5 percent in 2008.
Capital return on these investments, however, has been much more volatile, and almost halved last year. For the Asian market, capital growth averaged only 1.2 percent last year, as compared to 2.3 percent in 2011.
“Only some markets [worldwide] had higher returns in 2012 than in 2011, and capital return was actually the biggest differentiator,” Kevin Swaddle, Asia managing director at IPD, said at a presentation in Hong Kong.
Some of Asia’s largest markets saw significant drops in real estate returns last year. China’s returns dropped to 6 percent overall from 16 percent in 2011, and Hong Kong returns dropped to about 13 percent from 23 percent.
Only the small markets of Malaysia and Thailand saw meaningful growth last year, according to the study.
The three markets with the highest returns in Asia – Taiwan, Malaysia, and Hong Kong – were the markets most dependent on capital return. In Taiwan, for example, capital returns accounted for 9.5 percentage points of the country’s 13.5 percent overall return. This could become an issue of concern, according to executive director of CBRE’s Asia research Nick Axford, because Asia’s capital values are increasing faster than the recoveries in its occupational markets.
Over a six-year period, real estate is the asset class in Asia with the highest returns on average when compared to equities or bonds. Further, Asian real estate had the highest returns of any region – 6.2 percent as compared to 3.5 percent for the US and 3.6 percent for Europe. While a good investment for the long-term, Axford pointed out that investors should be wary of volatility in the short term.
“It’s not enough to be able to survive on average – you need to be able survive the key risk points, the worst days,” Axford said at the presentation.
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