The top five investment markets for 2016
Bengaluru, Mumbai and New Delhi get high scores in a list of 22 markets in the Asia Pacific Region
Foreign investors have given up a thumbsup to the Indian f oreign i nvestment policy for the real estate sector which has helped the country regain favour as a preferred investment destinations in the Asia Pacific region, says the Emerging Trends in Real Estate Asia Pacific 2016 report, jointly published by the Urban Land I nsti t ute ( ULI) and PricewaterhouseCoopers (PwC).
Bengaluru, Mumbai and New Delhi were ranked 12, 13 and 16 by survey respondents for investment prospects and 15, 13 and 11 positions, respectively, for development prospects in the list of the 22 markets covered in the report. While Mumbai and New Delhi have dropped in rankings from an investment prospects perspective ( they were ranked 11 and 14, respectively in Emerging Trends in the Real Estate Asia Pacific 2015 report), Bengaluru has shown a remarkable improvement as it has moved up five positions over its last year’s ranking (17th). The report attributes the surge in Bangalore’s rankings to its technology industry and the availability of a large pool of skilled labour necessary to ramp up the venture capital backed startups.
The report highlights that Mumbai is on a recovery path on the commercial real estate side and, down-town is on stable ground. Delhi and nearby industrial zones have one the biggest pipelines of new supply in Asia and on the ground, occupancy problems are focused on B-grade or secondary assets rather than the higher-quality buildings, for which the demand remains high.
The story in Bengaluru is, however, different from that of in Mumbai and Delhi, where even the huge amount of upcoming supply of commercial office inventory is not perceived to be a cause of concern, as it is expected to be matched by an equally high absorption rate.
The outlook seems positive; this is evidenced by the fact that 80% of the foreign capital inflows have been all-equity buyouts by big institutional players. Even those investors who had burnt their fingers in the first round of investments in 2006-07, are not wary of Indian markets anymore, and are willing to bet their money once again on the Indian real estate story.
The Emerging Trends report provides an outlook on Asia Pacific real estate investment and development trends, real estate finance and capital markets, and trends by property sector and metropolitan area. It is based on the opinions of more than 400 internationally renowned real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants.
Tokyo (ranked first for investment and development) – Tokyo “ticks all the boxes” for investors given its status as Asia’s top gateway city, and the market with the greatest depth and liquidity. Still, despite the continuous heavy activity fuelled by easy credit and low interest rates, some are wary that the market is slowing. While the short-term outlook is favourable, a slowdown, accompanied by price stagnation or declines, could prove problematic for those needing to refinance high loan-to-value loans in the future, the report cautions.
Ho Chi Minh City
Ho Chi Minh City (fifth for investment, fourth for development) – Ho Chi Minh City’s rating has soared over the past two years, jumping from 19th place in 2014 to one of the top five for 2016.The report attributes its surge in popularity to successful efforts by the government to stabilise the local currency and keep inflation in check, coupled with a revival of real estate lending by banks. In addition, improved market access for foreigners is drawing outside investors, who could significantly boost purchases of both residential and commercial properties.
Across the Asia-Pacific region, the industrial/logistics sector continues to be the most popular property type for investment prospects. “Shortages of modern distribution facilities across almost all markets ensures that demand will continue to grow, especially in China,” says the report. It notes that demand is being driven by the need for rapid delivery resulting from the e-commerce boom, buildout in the cold-food chain, and structural changes in regional manufacturing as operations move to emerging markets such as Vietnam.
Sydney (second for investment and development) – Sydney is a draw for institutional investors seeking core office properties. The shortage of those assets and an influx of new investors competing for the properties, coupled with a depreciated local currency, are resulting in strong property yields. Real estate in Sydney is also benefiting from the transformation of Australia’s economy from a commodities-driven to a service sector-driven model. In addition, a significant number of office-to-residential conversions and redevelopment projects have drawn investor interest.
Melbourne (third for investment and development) – Melbourne is perceived as offering a similar environment to Sydney. However, even with double-digit price increases in 2015, properties in the city remain more affordable than those in Sydney, mainly because more land is available for an expansion of the central business district (CBD). Absorption remains strong, both from newly arrived businesses and those moving from the suburbs to the core of the city.
Osaka (fourth for investment, fifth for development) – Osaka continues to benefit Tokyo’s “spillover demand,” as investors migrate to the smaller city where competition is not as stiff. Yields for residential properties are particularly strong, although commercial assets are also performing well. The market’s impressive growth “marks the end of a long period of oversupply that plagued the city for years,” notes the report.