Where to best invest in real estate in Asia Pacific

In Photo: Brando Cabalsi, tax director of PwC Philippines; Mike Enriquez, chief investment officer of Sun Life Financial; Colin Galloway, vice president for content of ULI Asia Pacific; Delfin Angelo Wenceslao, CEO of D.M. Wenceslao & Associates Inc. and managing director of Aseana City; Ariel Shtarkman, founder of Orca Capital/Atom Assets and senior content adviser, ULI Asia Pacific; and panel moderator Rick Santos (fourth from left), CEO of Santos Knight Frank

“The Philippines’s real-estate market remains healthy,” said emerging Trends in Real Estate Asia Pacific 2018. “Manila growth may be held back by lack of good partners and political controversies.”

Main points in the discussion:

1.    Urban Land Institute and Price Waterhouse Cooper data at the start of 2018 show that rankings may have gone down, but fundamentals remain strong.

• The Philippines market remains healthy, with both rents and capital values continuing to trend upward, amid an infrastructure boom and strong economic growth.
• Concerns over US base rate increases, together with domestic political issues, have been a drag on sentiment among foreign investors, as have long-standing difficulties in finding good local partners with whom to work.
• Growth in the business-process outsourcing sector has slowed down; Manila was ranked 18th in investment, 19th in development in the report, lower than in recent years.
• Office fundamentals continue to be very strong. Vacancies are low, while rent and capital values in the first half of 2017 are up a healthy 5.3 percent and 8.6 percent, respectively, year-on-year, according to JLL. Land prices, meanwhile, rose between 25  percent and 33 percent in the most popular areas of the city.
• Challenges for real-estate investors and developers include appreciating land and construction costs, while the volume of supply tempers rental rates and sales pricing, resulting in narrowing margins.
• The Philippines’s 2017 economic growth of 6.7 percent and thriving infrastructure projects have influenced the rise in rents and capital values. Although overseas investors’ outlook have been dented by political controversies, PwC’s 2017 Apec CEO Survey shows that Philippine CEOs are more likely to raise domestic investment.
• Looking at the Asia-Pacific region as a whole, of all the influences shaping investment flows in Asian real-estate, it is excess liquidity that is seen as having the biggest effect. Local sovereign and institutional funds bearing stockpiles of accumulated cash are buying property, both regionally and globally, creating competition for assets that is changing investment patterns in fundamental and often unexpected ways.
• Traditional investors are now taking interest in alternative asset classes and new markets, such as data centers, affordable housing projects, build-to-rent (or co-living) facilities and student and senior housing.
• Also of interest are the boom in co-working facilitie, concerns about how the Asian retail sector will weather e-commerce challenges, and an ongoing exodus of money from Asian institutions into international markets.
• Cities that are the biggest gainers in this year’s survey are those where investors seek to maximize returns via rental growth (Sydney and Melbourne), those that look for returns that are safe and low, but still higher than yields on sovereign bonds (Tokyo), or those that tap long-term secular growth in emerging markets (Vietnam). In addition, there was resurgence in investor sentiment toward Singapore, which appears to have found a bottom in both the office and residential sectors.

The top 5 markets for investment and development in 2018:

•   Sydney (first in investment, first in development)—Sydney’s appeal lies in the fact that it is a major city in a mature economy that combines a reasonably deep and liquid market of core assets, with a better-than-average yield.

•   Melbourne (second in investment, third in development)—Melbourne’s appeal as an investment destination is very similar to Sydney’s:  a mature market, high-quality core assets and relatively good yields by Asian standards.

•   Singapore (third in investment, sixth in development)—After two years of declining rents caused by a sluggish economy and a glut of supply, the promise of a bottom in Singapore’s office market has caused its ranking to soar from next-to-bottom last year to third in this year’s table.

•   Shanghai (fourth in investment, fourth in development)—Shanghai is seeing an increase in transactions driven partly by surging demand from domestic buyers who have been barred from exporting capital as a result of a government regulatory crackdown, and partly by foreign core funds flush with new capital they need to deploy.

•   Ho Chi Minh City (fifth in investment, second in development)—With an economic trajectory thought to be similar to an early-day China, Vietnam is seeing large regional developers and an increasing number of private equity funds betting it will offer up a repeat of the Mainland China experience in terms of property price inflation.

SOURCE:  Business Mirror