Broader economic troubles finally are beginning to weigh on the private real estate market in Asia’s more mature markets, such as Australia, China and Japan, according to a study released by KPMG. However, demographics of the smaller emerging markets of Southeast Asia offer the promise of a higher yield, and that’s been enough to keep capital coming to the Asia-Pacific region.
In Australia, for example, while foreign real estate investment increased 29 percent year-on-year in 2012, the government has increased the Managed Investment Trust (the structure offshore real estate investors must use) withholding tax to 15 percent from 7.5 percent, which “has created some investment uncertainty for offshore investors,” the study said.
Both China and Singapore’s measures to cool the real estate market also are beginning to work: Beijing and Shanghai housing prices fell 2 percent in 2011 alone, and the net absorption rate for Singapore offices dropped to negative 400,000 square feet as the vacancy rate climbed to 6 percent in the fourth quarter.
“The overriding theme for most countries [in Asia] is the broader economic challenges,” Alison Simpson, partner at KPMG China, told PERE. In larger markets like China, real estate investments have become challenging to exit in the short term, while valuations have been driven up, she explained.
For private equity real estate particularly, yield expectations have come steadily down over the past few years, according to Richard Dawson, another partner at KPMG China. “Many funds have had to reassess the kind of returns they can get,” he said.
Still, the macro trends that are causing trouble in Asia’s larger markets are the very trends heating up smaller markets like Indonesia, Thailand and Vietnam, the study found. All these countries have strong demographics – an emerging middle class, a high urbanization rate and decent economic growth.
In Indonesia, for example, overall absorption of office space grew more than 5 percent in 2012 to 350,000 square meters in Jakarta alone, while rental rates grew to IDR 220,000 (€17.25; $22.7) per square meter per month from just IDR 160,000 in the same period. Hence, the study names Indonesia in particular “one of [Asia’s] hottest property markets.”
Both Simpson and Dawson agree that the private money chasing real estate assets has not declined in the past few years. “It’s been flattening in developed markets, and I see a steady increase in the developing markets,” Dawson said.
Even the frustration of getting lower yields is not enough to drive real estate investors away. “Asia is attracting just as much – if not more – funds as ever,” Simpson added.