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THE confluence of economic uncertainty brought on by the deepening subprime crisis has posed a real risk of a systemic financial event and a prolonged global economic slowdown. This, coupled with another round of de-leveraging in the structured credit market has led to further pressure and deterioration in real estate prices, predominantly in the US and Europe. Given that the pendulum swung as far as it could in the direction of reckless mortgage lending, it will now swing back towards the quaint notion of buyers being lent only the amount they can reasonably be expected to pay back.Whilst the rout has largely been confined to markets outside Asia, we see considerable softening in real estate markets with high foreign participation and in certain high-end segments. Opportunistic investors are pulling back from Asian property given more scope for acquiring distressed assets in their home markets, and loans remain elusive in Japan and Singapore, one of their favourite markets.In Hong Kong, strong economic growth continues to support residential market. Hedge funds have stopped dabbling in property in the region, and although private equity players will continue to develop property in India and China, they are more likely to buy buildings cheaply in Western countries than in Asia.We expect values for US commercial real estate to fall by 23% in the next five years from their 2007 peak, causing losses of about US$1,600bil, including those on commercial mortgage backed securities.London office values have dropped 12% from a peak in the middle of last year, and will be under further pressure from forecasts of a 15% decline in rental values through 2009.In 2007, total direct investment in Asia jumped 27% to US$121bil – a sixth of the global total –with approximately half invested in Japan and Singapore.Real estate stock in Asia currently stands at US$9.5tril, growing on average by 6% - 7% p.a (except in China which grew by 15% p.a). China and India make up 50% and 12% of the total stock respectively while Japan constitutes 20% of the total.
The demand for real estate is dependent on the health of the economy, which in turn is affected by financial markets.In 2008, we expect prospects for Asia’s real estate to remain lukewarm, especially in traditional FDI led markets like Singapore. The global economy still faces major uncertainties as to how a further unravelling of the credit crisis will affect the availability of credit and asset pricing.The resilience of Asian economies and the real estate market will be truly tested in 2008. Buoyant domestic consumption is expected to help the region weather a substantial economic slowdown as weaker global demand impacts Asian exports.Overall, despite the risks inherent in the region, we believe opportunities remain in Asia’s real estate market, mainly in grade-A office space, driven by sound GDP growth (projected at 8% y-o-y) underpinned by sustained private consumption, higher public and private investments; a re-rating of property as an asset class, sustained domestic demand and on-going infrastructure development.We remain bullish on India and Vietnam, with a cautious view on China, Malaysia and Singapore.
The demand for real estate is dependent on the health of the economy, which in turn is affected by financial markets.In 2008, we expect prospects for Asia’s real estate to remain lukewarm, especially in traditional FDI led markets like Singapore. The global economy still faces major uncertainties as to how a further unravelling of the credit crisis will affect the availability of credit and asset pricing.The resilience of Asian economies and the real estate market will be truly tested in 2008. Buoyant domestic consumption is expected to help the region weather a substantial economic slowdown as weaker global demand impacts Asian exports.Overall, despite the risks inherent in the region, we believe opportunities remain in Asia’s real estate market, mainly in grade-A office space, driven by sound GDP growth (projected at 8% y-o-y) underpinned by sustained private consumption, higher public and private investments; a re-rating of property as an asset class, sustained domestic demand and on-going infrastructure development.We remain bullish on India and Vietnam, with a cautious view on China, Malaysia and Singapore.
(The Star 5-4-2008)
