Asia Market Snapshot Q2 2016
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CAPITAL MARKETS & INVESTMENT SERVICES I ASIA Asia Market Snapshot Q2 2016
Transcript of Asia Market Snapshot Q2 2016
CAPITAL MARKETS & INVESTMENT SERVICES I ASIA
Asia Market Snapshot Q2 2016
2 | ASIA MARKET SNAPSHOT Q2 2016
The second quarter of 2016 ended with unprecedented financial markets upheaval following the decision by the United Kingdom to withdraw from the European Union. The uncertain future of the UK, along with Europe, is expected to weigh down the already fragile global economic environment in the coming months (if not years).
Market watchers anticipate that capital “flight to safety” flows will expedite over time to seek out safer havens in non-UK and possibly non-European investments. As a result, Asian markets and its real estate sector are widely tipped to be one of the main beneficiaries of “Brexit”.
Shanghai and Singapore had seen strong volumes in commercial real estate investment activity in the past quarter.
There were 17 successful en bloc transactions in Shanghai alone during Q2. In addition, several other deals are expected to be done in the next few months as investors rush to buy assets amid rising capital values.
In Singapore, the standout deal has to be BlackRock’s landmark sale of Asia Square Tower 1 to Qatar Investment Authority for SGD3.4 billion (USD2.52 billion). This brought total deal volume to SGD8.56 billion (USD 6.34 billion), coupled with the acquisitions of Straits Trading Building as well as a 50% stake of 78 Shenton Way for SGD560 million (USD 414.4 million) and SGD301.5 million (USD223.11 million) respectively.
In Hong Kong, investors remain bullish on CBD office properties, on the back of healthy rental growth and large take-up from Chinese financial institutions, banks and asset management companies.
Our Asia Market Snapshot aims to provide information on the latest trends, along with advice from my colleagues in Asian markets, to help you make more informed investment decisions.
We note several other notable key trends across Asia :
• Increasing number of core real estate investment mandates, given declining government bond yields and investor risk aversion.
• Institutional investors continue to pursue well-located and quality commercial assets in key Asian cities including Shanghai, Hong Kong and Singapore.
• India’s recent announcement of pro-investment measures is likely to boost the country’s foreign direct investments and the real estate investment trusts (REITs) sector.
A regional view
Terence TangManaging DirectorCapital Markets & Investment Services I Asia
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Betty WongShanghai remains a bright spot of China’s investment market in Q2, with the conclusion of 17 en bloc transactions in the quarter. With the diversification of financing instruments being introduced and restriction on the domestic capital outflow, there were heightened domestic investment activities stimulated by local capital.
Both domestic investors and developers were actively seeking strata-titled serviced apartments with promising return on investment profiles, which in turn generated strong demand in this sector. As for vacant downtown business district (DBD) offices and business parks, they continued to attract owner-occupiers.
Wang YangWith the government’s emphasis on shifting non-capital functions out of the downtown area and its follow through with the Beijing-Tianjin-Hebei (Jingjinji) integrated development plan, developers continue to contribute to significant land biddings in the Jingjinji suburban areas. The tight control on Jingjinji’s land supply has also led to the steady rise of the unit prices of construction land.
Though both local and overseas institutional investors are highly interested in Beijing’s office spaces, investment opportunities were limited in core areas as vendors of properties with stable rental income continued their hold-and-lease strategy.
In mid-May, Shimao Real Estate set a new record for retail en bloc sales in Beijing with its disposal of the Shimao Department Store to LeTV, a new tech giant, for approximately 2.97 billion yuan (USD445.5 billion), translating to a unit price of over 70,000 yuan (USD10,000) per square metre for the above ground retail GFA. We noted that tech giants with the likes of Alibaba and Baidu are also becoming active investors in the market.
There is currently a new trend of institutional investors showing preference for older office, retail and hospitality properties situated in traditional business areas, with plans of potentially renovating these assets before capitalising on them. However, investors’ return on investment cannot be met given the vendors’ expectations of selling these properties at high prices.
BeijingShanghai
From sectoral perspectives, office and business park continued to be the most active segments; whilst the serviced apartment sector recorded completed transactions for the fourth consecutive month even though the government had, since Q1, placed the limited purchasing order on residential properties into effect. On the retail market front, one transaction in the core CBD area was made by a domestic retail company.
The outlook for H2 2016 investment market remains optimistic. Several deals in the negotiation stage are expected to be concluded in the short-to-medium term. Given the strong demand from market investors to procure assets, capital value is forecasted to increase moderately while the investment yield is accordingly expected to decrease at a modest rate.
Office property investment remains of priorityin Beijing’s real estate investment market.
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USD992.95million
ChengduJacky TsaiFor Q2 2016, residential sales continued to increase in main urban areas. Given the lack of release of designated land for residential development, developers have started to pay close attention to other high development potential locations around this main area. This resulted in the bids of three greenfield lands in Tianfu New City coming in at 100%, 94.29%, and 104% premium respectively.
On the commercial real estate front, although there were no en bloc transactions were announced during the quarter, there are some ongoing discussions. Owing to the persistent oversupply of office space, foreign institutional investors are monitoring the market cautiously. However, local investors are adopting more aggressive strategies and focusing on high-quality offices in the downtown area and Tianfu New City.
Despite the comparatively stagnant investment market in the first half of the year, institutional investors continue to pay close attention to Chengdu’s commercial real estate market. It is possible to see one to two en bloc transactions emerging in the latter half of the year.
Douglas Lin
In the first half of 2016, office investment market was extremely active with transacted value of 6.619 billion yuan (USD992.95 million) tracked and all purchases were made by local companies.
Shenzhen
Derek HuangWith the market on a decline and softening of property prices, buyers enjoyed greater bargaining power. However, well located assets that were reasonably priced remained attractive to institutional investors whose portfolios comprised a sizeable real estate allocation among other investment vehicles.
The largest transaction during this quarter was the Hi Lai New World Centre in Kaohsiung City, of which Taiwan Life Insurance spent TWD16.5 billion (USD511.5 million) for this mixed-use complex comprising Grand Hi Lai Hotel and Hanshin Department Store. As a result, the overall quarter-on-quarter market transaction doubled to TWD25.2 billion (USD781.2 million).
Given the uncertain market outlook leading to greater caution among institutional investors, self-occupiers now face lesser competition and have the opportunity to shop around. WPG Holdings purchased a pre-sale office building in Nangang, Taipei for their own headquarters for TWD6.6 billion (USD204.6 million). In addition, there were several transactions for occupational purposes in decentralised areas such as Neihu Technology Park, Nangang Software Park, and Zhonghe Industrial Park.
Taipei
The office vacancy rate is likely to increase in the second half of 2016, with 10 new projects of a combined gross floor area of approximately 871,000 sq m slated for completion within the period. This new supply will depress the average rental rate due to increased competition and below-average rents at certain projects.
With demand derived primarily from local companies and in particular, the finance and IT sectors, the average vacancy rate declined 1.2 percentage points half year-on-half year to 10.1%. Net absorption was focused on new projects completed in 2015, totalling approximately 135,400 sq m, of which included about 15,000 sq m that relate to withdrawals from financial companies in the peer-to-peer (P2P) sector, as a result of stronger national regulations in this sector.
The first half of the year also saw several multinational manufacturers relocating their headquarters from the central business district to other districts with lower rental levels. This led to an increase in vacancies, especially in strata-title office buildings within the Futian District. The resultant average rent in the city’s Grade A office property market was lowered to 214 yuan (USD32.1) psm per month. On the residential front, the introduction of new housing restrictions by the Shenzhen government in March dampened the sales volume. Despite the decline in sales volume, the trend of rising housing prices persisted.
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Tang Wei LengThe investment sales market picked up significantly in Q2 with about SGD8.56 billion (USD 6.34 billion) worth of transactions recorded, an increase of 224.4% over the previous quarter of SGD2.64 billion (USD2.01 billion).
The commercial sector outperformed other property sectors and saw a total of SGD5.84 billion (USD4.31 billion) transacted during the quarter. A number of high value deals were sealed including BlackRock’s landmark sale of Asia Square Tower 1 to Qatar Investment Authority for SGD3.4 billion (USD2.52 billion), MYP Limited’s acquisition of Straits Trading Building for SGD560 million (USD 414.4 million) and Alpha Investment Partners’ acquisition of the 50% stake of 78 Shenton Way for SGD301.5 million (USD223.11 million).
On the residential front, attention has been placed on the unsold inventory from recently completed projects in the prime districts. Some developers commenced marketing campaigns such as deferred payment schemes to move sales in order to avoid paying extension charges.
Investors are likely to continue looking for ’value buy’ opportunities in the traditional prime districts. In addition, following the successful collective sale of Shunfu Ville at SGD638 million (USD472.12 million); ie. SGD747 (USD552.78) per square foot per plot ratio, the achieved pricing offers hope to owners and this could spark a return of interest in en bloc sales.
The uncertainty around how the UK and EU will negotiate the exit agreement is likely to lead to increased financial market volatility in the short term. It is expected that the uncertainties arising from Brexit may result in capital flowing into properties in mature and developed markets like Singapore which offers a ‘flight to safety’.
Singapore Hong KongAntonio Wu
In Q2 2016, the Hong Kong investment market saw signs of stabilisation. However, the mass residential market saw declining sale prices and slowing transaction volumes.
On the industrial sector front, the nil premium to facilitate the redevelopment and wholesale conversion of older industrial buildings under a set of revitalisation measures, of which ended March 31, 2016, was very well received by institutional investors seeking good yields.
On the retail front, although high street rents were still struggling, there were a lot of value add real estate acquisitions, particularly in the decentralised districts.
Globally, government bond yields were still on a decline trajectory in this quarter due to a slowing global economic growth and heightened investor risk aversion. This made a strong case for real estate as an income-producing instrument, thereby leading to an increasing number of core mandates by yield seeking institutional investors from the like of pensioners, insurers and endowment funds.
While the Hong Kong market demonstrated thin yields in the past cycle with strong growth expectations, there was in effect yield expansion due to weaker actual growth and growth expectation in the local economy. We anticipate more investment deals with higher yields to be within the core funds’ radar. A good example of a core sector deal conclusion in Q2 2016 was the sale of NWS Logistic Centre, 2 Tat Mei Road for HKD3.75 billion (USD487.5 million), which marked the largest industrial transaction in Hong Kong history by the total deal size.
Going forward, being at the crossroads of slow growth, turbulence in the currency markets as a result of the Brexit vote and receding expectations of a rate hike in the near term, we expect investors to gear up for more deals in the Hong Kong market in H2 2016. These deals are indicative of a vote of confidence in the US-pegged currencies and more appealing yields on the available investment stocks.
Developers’ interest in Government Land Sales (GLS) remained buoyant across the board. The strong interest and competitive tender bids demonstrated developers’ appetite for land and their confidence in the local market. It is expected that both local and foreign interest in GLS sites will persist going forward.
Investors showed strong interest in Central Business District (CBD) office properties, on the back of healthy rental growth underpinned by tight supply near the CBD as well as large take-up from Chinese financial institutions, banks and asset management companies.
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Antony Picon Despite the establishment of the new government, the delay in the formation of the Myanmar Investment Commission that approves all investments in the country has put the related capital inflow and new developments on a standstill. The temporary suspension of more than 200 high-rise projects in Yangon to assess their compliance with the city’s development plan has also weighed in negatively on the situation. However, there is growing optimism for a positive turnaround with the newly elected government gradually taking shape.
There is increasing interest in the property market for ministry-controlled land, as the right to purchase and invest of the same that are owned by private entities remains prohibitively high for most investors. As the investors await further governmental guidance on the future growth areas of the city, they are making investment selections in more established locations like Pyay Rd and other well-known arterial roads.
The downtown area remains one of the core interest centres, with 63 acres (0.255 sq km) of land, which is within the Yangon Central Railway Station development, being tendered at a price that is estimated to be approximately USD2 billion.
Yangon’s property market may have slowed due to the current uncertainties but could reignite later in the year.
MyanmarSunchai Kooakachai
A slight increase in confidence in the property market for Q2 was partly due to continued strong growth in the tourism sector and also, a result of greater foreign demand in the condominium sector. The end to the government’s stimulus programme of temporarily reducing property transfer and mortgage registration taxes in April led to an acceleration of transfers and had taken a large amount of supply off the market. However, the banks continued to maintain tight lending policies.
The investment sector sustained to perform reasonably well as large listed residential developers are still buying prime land for new high-end projects and acquiring new assets through M&A deals. Persistent low interest rates continued to spur high net-worth individuals and large corporates to look for both income-generating and trading assets to store funds.
An increase in confidence in the next quarter is expected, given the massive planned investments in mass transit projects in Bangkok and its surrounding areas.
Thailand
Ieyo DeguzmanThe economy grew rapidly by 6.9% in the first quarter of 2016, primarily driven by increased investments and household expenditures, as well as a rise in public infrastructure spending.
The retail property sector is on an expansion mode, backed by steadily improving purchasing power and consumer confidence. The retail growth, which propelled increased manufacturing activities and requirement for warehouses and distribution centers, has in turn drove up the industrial space demands. New industrial locators’ space requirement was the other market driver for this sector.
The hospitality sector continues to be buoyant with an increase in foreign tourist arrival number which has surpassed the monthly average target of 500,000.
The positive Philippines property growth story is forecasted to sustain in the next few quarters. Major property developers are continuing their trend of township development outside the Metro Manila, a move to decentralise and create more investment opportunities beyond the major central business districts. A resurgence of interest from foreign property developers and property fund investors, particularly from Japan, Hong Kong and Singapore, is expected in view of the country’s progressive economic landscape, continuing rise of the middle income class, young population and continuing suburbanisation.
Strong macroeconomic fundamentals continued to bolster the growth of the real estate sector,with robust demands from the Business Process Outsourcing market leading to increased completion of premium and Grade A office spaces.
Philippines
Premium& Grade A
offices
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Suresh CastellinoGiven the resilience of the Indian economy and strong capital inflows, the real estate sector is en route to recovery, albeit gradually and slowly. The government’s recent announcement of measures regarding foreign direct investment and real estate investment trusts (REITs) is likely to boost the country’s overall economy and facilitate investments into India.
With an aim to make REITs more attractive to investors and real estate players, the Securities and Exchange Board of India will relax its regulations to allow REITs to have a larger number
India
Approximately1.7 million square metresof new office space will be added (2016-2018).
Steve Atherton Some positive signs in the Indonesian economy were observed in Q2 2016 but the overall Indonesian property market is still moving slowly compared to earlier high growth cycles in 2010 – 2013. In an attempt to spur the property sector, the government has undertaken several measures such as the provision of tax incentives, the soon-to-be-formalised Indonesian REIT market, increasing Loan to Value ratios and increasing the tax threshold on luxury property.
In addition, the Indonesian Parliament passed the Tax Amnesty Bill into law on 28 June, after months of deliberation. This tax amnesty programme, effective 1 July 2016, is expected to boost tax revenue and makes it attractive for tax evaders to declare their offshore assets and repatriate these into Indonesia. This voluminous fund influx will impact the property sector positively, as a result.
Concurrently at play are other growth catalysts from the financial sector including Bank Indonesia’s gradual reduction of the benchmark rate by 75 basis points to 6.75% and the reduction of lending rates by the Financial Services Authority (OJK) and Bank Indonesia to under 10%.
On the back of weaker demand, the Central Business District office market would be adding approximately 1.7 million square metres of new office space from 2016 to 2018. Evidence of a weakening office market could be observed as 12 office buildings lowered their rates by 20-30% in the last quarter. In addition, since the middle of 2015 when Bank Indonesia started the requirement that all property transactions be conducted in local currency, around 20 office buildings that previously charged office rents in USD had been forced to charge in Rupiah and dropped their rates due to the competitive environment.
Indonesia
of sponsors, coupled with the option to invest a larger proportion in assets still under construction..
Local and foreign investors are aggressively looking for pre-leased commercial assets including those in International Tech Parks and Special Economic Zones, as they aim for assured returns from their investments. As for the residential market, it continues to witness subdued sales and downward pressure across all segments but the effect is particularly imminent in the premium housing segment.
In Q1 2016, approximately 6,013 apartments entered the market through six new projects. While sales had slowed dramatically for under construction projects (now at 67% take-up), the best performing segment was of end-users at existing, completed projects. Overall, the asking prices of apartments in Jakarta had been stagnant.
Due to the soft market, developers were seen offering incentives such as big discounts and flexible payment plans for serious buyers. Most developers were offering 36-month instalment plans as their default pricing strategy, and included discounts as well as promotional incentives which reduced prices by as much as 20%.
LINA WONG
BRETT JENSEN
KICHOON JUNG
East and Southwest [email protected]
BETTY WONG
Southwest [email protected]
JACKY TSAI
North [email protected]
WANG YANG
JAMES FINK
South [email protected]
ERIC LAM
BAYAN KUATOVA
SUNCHAI KOOAKACHAI
Hong [email protected]
ANTONIO WU
Hong [email protected]
DOMINIC CHUNG
IEYO DE GUZMAN
DAVID JACKSON
STEVE ATHERTON
DEREK HUANG
IMRAN MOHIUDDIN
SURESH CASTELLINO
ANTONY PICON
TANG WEI LENG
TERENCE TANGAsia
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