Industry Profile — Key Points
• The Asia-Pacific is the third largest real estate market, after Europe and North America, but has the highest amount of listed real estate, €515 trillion (US$683.25 trillion) as of January 30, 2009, compared with €228.1 trillion (US$302.62 trillion) in Europe and €393 trillion (US$521.39 trillion) in North America.
• The overall fundamentals of the Asia-Pacific office and retail property markets have weakened over the last year, with many existing tenants adopting a cautious view regarding expansion, causing rents to fall.
• A lack of credit meant the Asia-Pacific REIT markets suffered their deepest falls in the second half of 2008, with their total market capitalization down almost a third.
• Tight credit requirements for property acquisition led to slowing Asia-Pacific investment activity in the second half of 2008.
• After years of tight constraints, most countries implemented a range of more liberal policies and measures to boost their sluggish property markets.
Market Trends and Outlook — Key Points
• Most Asian REITs are finding that a lack of available credit is affecting investors’ decisions about finalizing deals, with the value of the top ten transactions by Asian REITs down almost 40% in the second half of 2008.
• Building development is becoming more environmentally friendly with companies and households applying cost effective measures to reduce greenhouse gas emissions.
• The global economic recession is likely to slow Asia-Pacific property market growth in 2009, with further room for property price adjustment in many markets and with investor and household confidence still low.
• More fiscal stimulus measures, apart from interest rates cuts, may be needed to aid property market growth.
Current Environment — Key Points
• The poor economic environment and the onset of the US subprime mortgage crisis caused a housing market downturn in the Asia-Pacific during the six months ended April 30, 2009.
• Central banks across the region cut interest rates to historic lows, while governments unveiled economic stimulus packages worth trillions of dollars to boost their economies and property demand.
• Investor confidence picked up in mid-March, with the average share price of 14 leading Asia-Pacific property companies up 17.19% over the six months ended April 15, 2009.
• Weak equity sentiment caused companies to either lower their IPO prices or delay listing, leading to few IPOs across the region over the six months to April 15.
• The property market downturn caused most leading Asia-Pacific property companies to report net losses in the quarter ended December 31, 2008, with few mergers and acquisitions (M&A) recorded.
Industry Focus - Residential Segment
Rapid residential property growth in most Asia-Pacific countries ended in 2008, as the weakening economy hit household income. In China, the massive residential property boom slowed, after the Government introduced a series of anti-speculative measures to curb growth. The People’s Bank of China (PBC) reported that outstanding loans in the property sector totaled RMB5.28 trillion (US$774.63 billion), down 20% from the previous year, including RMB1.93 trillion (US$283.15 billion) of property development loans and RMB2.98 trillion (US$437 billion) of individual mortgage loans.
In Australia, demand for residential property declined, as the weakening economy started to affect employment. Australian Bureau of Statistics (ABS) data shows the approval of 98,709 private dwelling permits in 2008, down 7,282 from 105,991 in 2007. As property prices fell, the value of private dwelling approvals declined by 2.62% to A$41.88 million (US$30.53 million) in 2008, from A$43 million (US$31.35 million) the year earlier.
The poor economic environment also reduced demand for residential property in Hong Kong. Land Registry figures show that residential property sales in the first three months of 2009 totaled 16,464, down 55.4% from 36,917 in the same period of 2008. Property sales were worth HK$55.19 billion (US$7.12 billion), compared with HK$137.73 billion (US$17.77 billion) the year earlier. Residential properties at prices ranging from HK$1 million (US$129,030) to less than HK$2 million (US$258,060) were the most saleable in Hong Kong, accounting for 40.54% of the total.
In 2008, the number of residential property starts in Japan picked up slightly, despite the weakening economy, which started in mid-2008. Ministry of Land, Infrastructure and Transport (MLIT) data shows that the number of new residential starts picked up to 1.09 million in 2008, up 3.09% from 1.06 million in 2007, but down 15.26% from the record high of 1.29 million in 2000. About 42.5% of the total was rented property, while 29.13% was individually owned.
Real Estate Investment Trusts
A lack of credit caused the Asia-Pacific REIT market to suffer its deepest fall in the second half of 2008. EPRA figures show the market capitalization of REITs in Asia shrank by almost a third over the last six months of 2008, to around US$48 billion, with nearly all REIT equity prices down more than 30%. Seven new REITs were listed, bringing the total number in Asia to 115 as at the end of December 31, 2008.
Australia is the world’s second largest REITs market, with more than 60 Australian REITs (A-REITs) listed on the Australian Securities Exchange (ASX) and a market capitalization of more than A$100 billion (US$72.9 billion). Australia was the first country in the region to adopt REIT legislation in 1985. Known as Listed Property Trusts (LPT) until March 2008, they were then renamed Australian REITs (A-REITs) in line with international practice. GPT Group (ASX: GPT) was the first LPT listed on the ASX.
Japan has the second largest REITs market in the region, established in December 2001. As of December 30, 2008, there were 41 REITs listed on the Tokyo Stock Exchange (TSE), with a market capitalization of ¥2.66 trillion (US$28.65 billion), which dropped 34.1% over the previous six months, due to falling property values and lack of credit.
Other two large REITs markets in the region are Hong Kong and Singapore, the main hubs for cross-border REITs listing from China and India. Cross-border listings have boosted their growth, with the number of listed REITs in Hong Kong and Singapore increasing to seven and 21 in 2008, respectively, from four and 13 two years earlier.
p/s photos: Wang Rou Yi