Positive outlook for Asian property

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-playing 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.'

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