Downtick in investor sentiment in Asia’s real estate market

Asia Pacific Real Estate market

Third-quarter deal count in the Asia Pacific fell 38 percent year-on-year to US$32.6 billion, recording the lowest third-quarter volumes for a decade in the region, according to a a new report jointly published by the Urban Land Institute (ULI) and PwC. Mainland China accounts for the biggest decline with a fall of 23 percent year-on-year, the 17th edition of the Emerging Trends in Real Estate Asia Pacific Report reveals.

“Rising interest rates and the slowing global economy are beginning to impact regional asset valuations and changing the way investors assess potential deals. As a long-term inflation hedge, real estate will continue to draw capital, but the industry is also likely to undergo significant change over the coming years, due to the evolving economic environment and changes in the ways that people use the built environment” David Faulkner, President of ULI Asia Pacific, said.

The top markets for investment prospects in the region were characterised by deep, liquid markets and a flight-to-safety approach. Singapore, Tokyo and Sydney continue to rank as the top three markets. With the ongoing liquidity crisis in Mainland China’s property sector and persistent pandemic restrictions, Singapore has benefitted from the redirection of capital that might otherwise have been placed in assets in Mainland China and Hong Kong SAR. Tokyo continues to enjoy a near-zero interest rate environment, which ensures lower borrowing costs and a more positive spread over the cost of debt. Despite the easing of COVID restrictions in Hong Kong SAR, its status as the most expensive commercial and residential market in the Asia Pacific has made it vulnerable amidst the current high-inflation recessionary environment.

The office sector remains the biggest asset class in the region. Prime assets in business precincts and districts are invariably in short supply and are constantly the targets of regional core funds competing to place capital. At the same time, wide pricing gaps between buyers and sellers are expected to persist for some time.

The report is based on a survey of 233 real estate professionals and 101 interviews with investors, developers, property company representatives, and lender brokers.