Asia-Pacific leads rebound in real estate transactions

 

Third-quarter data on real estate transaction volumes worldwide reaffirms the view that Asia-Pacific is a hot-spot in global terms.

Transaction volumes in the Asia-Pacific increased 44% to $20.8 billion during the quarter as the region resumed its upward trend. It follows a second-quarter blip blamed on domestic cooling measures brought in by Beijing.

Global transaction volumes also returned, rising 15% quarter-on-quarter to total $303 billion for the past 12 months – a 47% increase year-on-year.

Asia-Pacific accounted for 26% of global volumes in the third quarter, up from 21% in Q2 but down on 29% in the first three months, finds a report by the Asia-Pacific Real Estate Association (Aprea) and Real Capital Analytics (RCA).

“The general trend is a rising one in terms of global transaction volumes and that has been mirrored in Asia,” says Lok So, Aprea’s operations director based in Singapore. “Do we see transactions in Asia continuing to rise? You would expect so. In terms of investible real estate in the world, it is almost a no-brainer that Asia will get the lion’s share of that, driven by China.”

Transactions in China bounced back in the third quarter, up 188% on Q2, although volumes were still only 56% of the first quarter. It comes after an 81% quarter-on-quarter drop in Q2.

Asked about the prospects for China real estate and the likelihood of a similar dampening in future given that market’s dynamics, So said he did not feel in a position to comment on issues such as bubbles.

But he points out: “China’s cooling measures were aimed more at the residential sector, whereas the biggest contributors in terms of dollars and volume are office and retail. Just the sheer volume increase in terms of real estate going forward would suggest transactions would have to follow suit.”

Certainly the office sector continued to lead transaction volumes in the third quarter with $9.9 billion, or 48% of the Asia-Pacific total, while it was the retail sector that drove the Q3 rebound in transactions with a 158% jump (although it also led the Q2 plunge).

Importantly, Reits and listed property firms continued to assert themselves as the dominant buyer group in the region in the third quarter, accounting for 37% of known transactions.

By contrast, institutional buyers saw their share of transactions average just 11% over the last three quarters, compared to 28% over the previous 12.

So suggests that the institutional drop-off could simply be a reflection of the increase in buying from listed entities, noting there had also been a number of IPOs launched particularly in Singapore which would have added to public transaction volumes (at the expense of institutional).

But Peter Mitchell, Aprea’s Singapore-based chief executive, notes that Asian pension funds are forecast to have $4.5 trillion in AUM by 2020, with only a fraction of allocation policy directed at real estate at present.

“If you look at US and European investors, they are maintaining their policies of allocations to real estate and to Asia of the kinds they had going into the financial crisis,” he says. “Add Asia’s substantially bigger pool of institutional money [in the future], and the prospects for a sustained increase in activity in Asia look very good.”

Another factor to emerge from the third-quarter figures was that while domestic players continue to dominate buying activity (81%) as well as selling (73%), their market shares were at their smallest level for at least two years.

So suggests this is a reflection that risk appetite is improving and with it the number of offshore investments, both around the world and intra-Asia.

Cross-border transaction activity actually reached its peak in the middle of 2007, when it accounted for about half of overall volume. Asked if Asia was headed back to the 50% mark again, which would leave players exposed to another crisis, So replied: “You would probably hope not.”