Asia Pacific: Cautiously Optimistic

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FDI Features

28 Oct 2009

Richard Price, CEO ING Real Estate Asia, discusses the relative health of real estate markets in Asia

Which Asia Pacific markets have been most affected by the global financial downturn and which have fared relatively well?

The Japan market has arguably been most severely affected and the commercial market in Singapore is also suffering but from a significant overhang of new supply. China and Korea have performed comparatively well.

As a company, how have you been affected by the global downturn?

With the support of our clients we have weathered the storm reasonably well although clearly with markets around the world severely challenged and property values falling our job as investment managers is as challenging as it has ever been. In Asia we have benefited from the relative strength of the markets in China and Korea and also managed to pick up business from competitors facing financial difficulties who have decided to exit the business.

What government economic stimulus packages have been put in place and does more need to be done?

I think for the time being the Government stimulus packages in China, Hong Kong, Singapore and Korea have had the desired effect. The support of the J-REIT markets by the Japanese Government has also been beneficial to that market. The main concern remains Japan although there seems to now be some stability and even modest growth there which will have a big positive impact.

To what extent has liquidity tightened and is financing available for real estate investment and development?

Bank financing remains very difficult to obtain from international banks but local banks remain active across the region but at lower LTV ratios and they are much more selective as to the quality of both the real estate and the sponsor to whom they lend.

To what extent has private equity withdrawn?

I think withdrawn is too strong, international private equity real estate funds have though probably been net sellers in Asia this year and buyers have almost entirely been locals, in addition to this a number of firms have decided to exit the industry. Having said all that there are local private buyers emerging and international groups reforming and starting to raise equity again. There is no doubt though that the competitive landscape has changed dramatically.

Are there any particular types of projects for which banks are more likely to lend?

In general banks currently prefer completed assets with quality income streams and strong sponsors. Having said that, in China banks are supporting all types of real estate as long as the sponsorship is strong and the leverage levels moderate – i.e. 50% or less.

Which markets continue to attract international investment?

China mainly with a lot of people looking at Japan but failing to find the level and extent of distress originally anticipated.

To what extent have you changed your investment strategy and what lessons have you learned?

In response to our clients we are looking at more portfolio / club transactions in addition to our funds. We continue to focus on delivering strong, consistent returns over time with appropriate levels of risk.

Do you think Asian markets are dealing with the global crisis better than Western economies?

Yes – but that is not surprising as they did not experience the same level of “bubble” and were not nearly as highly leveraged. In addition the Asian economies and bank sector in general were not as aggressively leveraged as was the case in North America and Europe.

Which Asian markets do you think are low risk and which are high risk?

In terms of systemic risk of the countries and their real estate markets we categorize Japan, Hong Kong and Singapore as Low Risk, South Korea as medium risk and China, Thailand, Malaysia, Philippines, Indonesia, India and Vietnam as High Risk.

Which markets, if any, do you think have bottomed out?

Arguably a number of markets have already rebounded significantly from the bottom. Having said that, the office markets in much of the region remain quite uncertain with questions around both future demand and supply.

To what extent do you think Asian real estate markets are cyclical and do you think emerging markets will continue to be attractive for international investors?

All markets are inherently cyclical and if indeed Economic Growth is the single largest driver of real estate returns then emerging markets will indeed remain attractive for international real estate investors.

Do you think international investors will revert back to the mature markets for opportunistic investments?

Yes but not with the entirety of their portfolios, many investors have seen how overly concentrated geographic portfolios have suffered during this down turn and will continue to diversify their investments geographically. In addition to which Asian institutions have emerged from this crisis in a very healthy state and will look to invest globally going forward.

Do you think there will be increasing interest in REITS?

Asia is already the largest regional market for listed real estate equity, both REITs and Property Companies and the public sector has been able to re-capitalize quite effectively already which should put the REITs in a position to grow and acquire assets going forward.

What do you think are the key lessons that have been learned?

Diversification is important, financing long term assets with short term capital (debt and equity) has risk as well as return, communication is key.

What do you think are the main challenges and opportunities?

I think for international investors the key challenge in Asia will be access to transactions with an attractive return potential as local investors are flush with liquidity and have both a different perspective on risk and a lower cost of capital.

What do you think is the outlook for the next 12 months across Asia Pacific?

We are cautiously optimistic and continue to see investment opportunity across the risk return spectrum in the region’s major markets.

Source: Cityscape Intelligence