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Inflows from outside region rising as a result of credit crisis in US and Europe, says report

BY JOYCE TEO, Property Correspondent

THE flow of capital into the Asia-Pacific's real estate market from outside the region is accelerating, a new report on property investment has found.

This is the result of the credit crisis in the United States and Europe, said the report by KPMG, FTSE Group and Asian Public Real Estate Association (Aprea).

The acceleration is coming off the back of prolonged steady growth, which has been powered by a combination of opportunistic and increasingly longer-term investments, it found.

"With the credit crisis in the US. and Europe, investors are seeing a slowdown there, so they. are looking to Asia for growth," said FTSE Group's head of quantitative research (Asia-Pacific), Mr Jamie Perrett.

Many institutional investors, such as pension funds, are looking to diversify their portfolios and increase their property allocations, he told The Straits Times.

Real estate as an asset class has outshone equities and long-term government bonds over the past decade, providing average returns of 7 per cent to 8 per cent, said the report.

And, while returns on real estate investments are expected to decline in most countries, returns in the Asia-Pacific are expected to remain higher than the global average of slightly over 5 per cent for the coming year, it said.

Market sentiment in Asia has been hit by the credit crunch and it is unclear when a rebound will occur, but the regional outlook should remain positive, said Aprea's chief executive officer, Mr Peter Mitchell.

The interest in investing in Asia remains but there are signs of a wait-and-see approach, he said. "We need to take a longer-term perspective."

Real estate investment trusts (Reits) are not growth stocks but good defensive stocks and inflation hedges, said Mr Mitchell. Projections show Asia's Reit market with a capitalisation exceeding US$100 billion (S$136.8 billion) by 2010.

"Despite the current tightening of credit from banks, the deals will continue to take place. But they may take longer, the price may be higher and it could lead to a temporary slowing in the supply cycle," said Mr Andrew Weir, KPMG's partner in charge of property and infrastructure in China and the Asia-Pacific, in a statement.

"However, the current sub-prime fallout elsewhere may well act as a catalyst for the inevitable further development of the Asia-Pacific as a centre of property and investment management."

According to the report, real estate funds remain the dominant source of capital for property investments in Asia this year.

Asian real estate, it said, may be experiencing some short-term pain but will eventually benefit from the credit crunch.

"In time, the credit crisis will result in Asia being regarded on a more equal and level-playin field compared to the more mature but struggling markets of the US and Europe."

Yesterday, FTSE and Aprea also announced that they signed an agreement to develop new indexes for the Asia-Pacific real estate sector.

Said Mr Mitchell: "It will give more visibility to Asian real estate markets, thereby enhancing the region's access to global capital."

joyceteo@sph.com.sg, Straits Times, 19 June 2008

PRIVATE HOME PRICES MAY HAVE PEAKED (2 JULY 2008)

GROWTH in private home prices ground to a halt in the second quarter, dragged down dismal market sentiments and a poor showing in the luxury segment.But things were cheerier among cheaper homes with price of suburban condominium and HDB resale flats continuing to climb.

Private home prices inched up 0.4 per cent between April and last month, according to flash estimates from the Urban Redevelopment Authority (LTA) yesterday.This the smallest rise in about four years and a stark drop from the 3.7 per cent rise recorded in the first three months of the year.

On the supply side, there were 67,700 private residential units as at the first quarter, of which 56,500 expected to be completed between this year and 2011. Some 42,700 units, or 63 per cent, in the pipeline are un-sold.

Experts were divided on whether the market has peaked. While home sales have been in the doldrum since late last year, recent launches - at lowered prices — have been encouraging.Some consultancies, like DTZ Debenham Tie Leung , predicted that the private home prices are "set for further correction, with bigger developerS likely to follow in the iodtsteps of smaller ones and cut prices to move sales.Prices will come under pressure from two other factors - Speculators dumping units and more homes homes coming on the market as construction end, DTZ Added.

Its analysis of selected projects showed that prime freehold flats actually fell in price by 4.7 per cent in the secondquarter while values of suburban and landed homes were unchanged.

Ms Chun Chor Hoon, DTZ's, senior director of research, said: "This is just the beginning of a decline. Prime properties have started to come down and while the mass market is still holding, we're - no longer seeing increases."

URA data showed that condos in the prime central region led slowdown in the second quarter, with prices creeping up Just 0.2 per cent. City-fringe home prices rose 0.7 percent while those of suburban condos increased by 13 per cent.

The star performer, was the HDB resale market, where prices climbed 4.4 per cent. — more than the 3.7. percent growth in the first quarter.

Mr Colin Tan, head, of research and consultancy at Chesterton International, said the demand for HDB flats was likely boosted by too-high prices of private homes.But the private home market "has probably peaked and prices will come' down, if not in the next month, then in the following months", he added.

Mr Nicholas Mak, Knight Frank's director of research and consultancy, added: "If sales volumes 'don't pick up much and if the United States posts very weak economic growth, we could see a price decline by December."

CBRE Research executive director Li Hiaw Ho noted that 1,200 to 1,400 new homes were sold between April and last month almost double the 762 sold between January and March.

Most of the projects that sold well were mid-tier or mass market condos, with average prices between $775 per sq ft (psi) and $1,225 psf, he said.

"Despite prices softening a little, volume has improved in the last four weeks and this might encourage more deve]opers "to launch products." This could boost transactions in the next two quarters, which may lead to a strengthening of prices, Mr Li added.

Dr Chua Yang Liang, Jones Lang LaSalle's head of Southeast Asia research, was more cautious. "Demand remains favourable in the suburbs, thanks to strong economic growth and a rise in average wages in the first quarter," he said. But the market is expected to "continue to swing from month to month till we see a clear stability in either volume or price level."

SENTOSA COVE PROJECT ON SCHEDULE (25 APRIL 2009)