According to new research paper by Ferguson Partners Ltd., a global executive recruitment consultancy, in partnership with the Asia Pacific Real Estate Association (APREA), reveals more bullish attitudes about Asia's real estate prospects for late 2012 and 2013, compared to the slowly recuperating U.S. and lagging European markets.
The findings are based on the feedback from one-on-one interviews with regional industry leaders and global investors, who provided their insights regarding expected capital flows into Asia and their outlooks for regional market performance.
After a recent hiatus, U.S. and European capital sources appear ready to restart investments into select cities and property sectors, including Japan, China, Singapore, Australia and Indonesia. However, that capital flow is still well below the high-octane pace prior to the 2008 global credit meltdown.
According to the research, the outlook for China will dictate real estate investment appetites in all neighboring countries. With a 7.5% increase in gross domestic product forecasted for 2012, China's growth and economic expansion is capturing the attention of return-starved institutional investors, who have been bogged down by lackluster U.S. and European markets.
"Right now, China is dictating the appetite for investments in the entire Asia-Pacific region," said Peter Rackowe, Senior Managing Director of Asia for Ferguson Partners Ltd. "Despite the great interest in China, the real estate leaders in that region are exercising caution and restraint, as they harbor doubts about how long China's leaders can keep the current pace of growth and when the current growth will begin to normalize."
Other trends and findings:
Interest rekindles in Japan - In comparison to China, Japan appears to be a defensive, safe and income-oriented bet. The outlook has brightened for Tokyo, although deal making and liquidity available for transactions remain a challenge. However, the Tokyo market should benefit from capital infusions in the aftermath of last year's earthquake and a more robust J-REIT market, which can access the market in ways not possible in China or India and offers the potential for good cash flows. Constrained supplies of retail and logistics space favor these sectors over office, which has higher vacancies and more suspect demand fundamentals. With stores taking more space, the retail leasing market is brightening, especially for urban shopping districts. Outside of Tokyo, investors are showing little interest elsewhere in Japan.
Other market opportunities - Despite excellent demographic profiles, India and Indonesia continue to suffer from investor concerns over corruption and lack of market transparency. With greater transparency and more reliable legal systems in place, respondents believe that Australia and Singapore will have solid investment prospects with less risk than China. However, offshore investors may continue to have trouble finding deals in these markets. Aside from well-placed local players, respondents do not believe that other regional markets will justify the investment risk at this time.
Capital flow dependent on partners - Regional players, who are more comfortable with local relationships, will more likely do "one-off deals". On the other hand, offshore investors have learned finding reliable, well-positioned fund managers and local partners will determine success more than market fundamentals. Chinese players prefer to align interests for the long-term, seeking strategic value in expanding their businesses and personnel.