Property Investment In Asia

Property Investment In Asia Expected To Increase After June

ASIA PACIFIC – Most respondents told CBRE that they expect property investment activity in the region to recover during the second half of the year thanks to reduced uncertainty about interest rates and a rise in capitalisation rates that will help close the price expectation gap between buyers and sellers, reported The Edge on Tuesday evening (23 May, SGT).

According to CBRE’s recently published Q1 2023 Cap Rate Survey conducted from 11 to 25 April, capitalisation rates are forecasted to increase in 2H 2023, extending the increase seen for all real estate classes during the first six months of the year.

In particular, the capitalisation rate for Grade A office properties in Singapore is expected to grow by 15 to 25 basis points by the second half of the year, while that in Hong Kong is projected to increase by between 20 and 50 basis points.

Notably, capitalisation rate is calculated by dividing a property’s annual income by its sale price.

Amidst this backdrop, CBRE notes that most asset classes are already witnessing a narrower price gap, including that for retail, hotels, multifamily properties, institutional-grade modern logistics, and Grade A office space.

Meanwhile, the real estate consultancy expects to see more clarity on interest rates in the coming months, with rates across most Asian economies stabilising in recent months.

“The interest rate cycle appears to be approaching its peak, and we expect this will lead to price discovery in markets such as South Korea and Australia,” noted CBRE’s Head of capital markets for Asia Pacific, Greg Hyland.

In light of the anticipated increase in capitalisation rates and greater certainty on interest rates, almost 60 percent of respondents polled by CBRE believe that property investment activity in Asia Pacific would pick up by H2 2023.

Overall, Japan is forecasted to lead the investment recovery in Q3 2023, followed by mainland China and Hong Kong later in that quarter, with Singapore, India, and New Zealand following suit in Q4 2023.

However, CBRE’s Research Head for Asia Pacific Henry Chin noted that interest rate hikes have greatly pushed up the funding costs for commercial properties in the region, with higher rate expenses deterring investors from refinancing assets, especially properties located in Australia, South Korea, and Singapore.

“We expect Korea logistics, Australia offices and Hong Kong offices to face the biggest funding gap in the coming 18 months, which could lead to more motivated sellers in the second half of 2023,” added Chin.

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