Q1 real estate deals fall sharply across Asia-Pac

China saw investment volumes plunge 80%; Singapore figure down about 57% year-on-year, says Knight Frank

Wed, Apr 01, 2020

NISHA RAMCHANDANI


REAL estate deal activity in the Asia-Pacific sank 50 per cent year-on-year in the first quarter of this year as investors hit pause amid the Covid-19 outbreak, according to Knight Frank.

China was the hardest hit, with investment volumes plunging some 80 per cent, while in Singapore, volumes were down about 57 per cent year-on-year in Q1 2020.

Neil Brookes, head of capital markets (Asia Pacific) for Knight Frank, said: "We anticipate there will be a short-term slowdown in purchasing activity in the region. Many investors are postponing investment decisions and moving to a wait-and-see approach."

However, mainland China and Hong Kong are expected to rebound more quickly than markets in the rest of the world.

"Australia and Singapore will also be relatively quiet as they're very exposed to cross-border investors, (who) can't do visits at the moment."

Taking a medium to long term view though, the outlook for Asia-Pacific as an investment destination remains positive on the back of factors such as urbanisation. Knight Frank estimates there was about US$34 billion in capital from private equity funds with Asia-specific mandates ready to be deployed as at September 2019.

Interest rate cuts and supportive monetary policy announced by governments recently will also support pricing, with acquisition volumes expected to pick up once the virus has been contained.

Where China is concerned, investors are indicating that "they're willing to look beyond the short-term hit to the economy" to get exposure to opportunities they might not normally be able to, such as e-commerce and major office buildings in Shanghai and Beijing, said Mr Brookes.

Knight Frank is also starting to see increased interest from Singapore-based investors who are keen on China, especially for offices and residential developments.

Daniel Ding, head of investment & capital markets for Knight Frank Singapore, said: "Ongoing uncertainties have placed consideration of Chinese cities on the backburner, whilst waiting for the storm to subside.

"We have witnessed fund managers returning to their investment committees with revised underwriting assumptions, but by and large, developers and funds with longer term views are likely to be less deterred and more prepared to dip their toes in. We are also expecting a few deals to be conducted over the coming months in Beijing and Shanghai."

Oversupply in office space has resulted in more mezzanine debt opportunities, particularly in Tier 1 cities such as Shanghai, while some local developers have also been exploring residential developments in Tier 1 cities as the take-up risks are relatively lower, said Mr Ding.

In the last quarter of 2019, risk aversion had already been sharpening with 95 per cent of office and retail transactions taking place in core markets such as China, Singapore, Australia, Hong Kong, Japan and Korea, data from Knight Frank showed.

This trend of capital pulling back from secondary markets in the Asia-Pacific and fleeing to the six safe core markets in the region is expected to continue once investment appetite returns.

Meanwhile, Knight Frank doesn't forecast lower demand for office space in the longer-term although corporate travel could decline by as much 30 per cent for some organisations as remote working becomes more commonplace post Covid-19.

However, vacancy levels could go up in the short-term as some companies either fail to survive or choose to scale down.

The co-working segment could also face some disruption, especially in saturated markets such as India, the real estate consultancy said.