Jump to content

Sinking Yields in Asia Spur a Property-Buying Shift


Porker
 Share

Recommended Posts

Turbocharged

Commercial real-estate yields in Asia are the lowest in the world, forcing investors to pay top prices for the highest-quality buildings, take on more risk or consider property investments outside of their regions for the first time.



Yields for centrally located office buildings are just 2.2% in Taipei, 2.8% in Hong Kong and 3.5% in Tokyo and Singapore. By comparison, they are 4.7% in New York and 3.8% in London's West End, according to CBRE Group Inc.



Pension funds, sovereign-wealth funds and other institutional investors have been willing to accept such low returns because they look attractive in a low interest-rate environment. But it also means that buyers are exposed to a loss in value if interest rates rise and demand for such low yields cools.



Yields have fallen so far in Taiwan that financial regulators last year instituted a new rule that limits domestic insurance companies' investments to properties that offer a rental yield of 2.875% or above. Authorities also have allowed insurance companies to buy real estate outside the country's borders for the first time.



Investors are modifying their strategies. Terence Loh, executive director at China-focused investment fund CDH Investments, said he has been investing in development projects in cities such as Beijing, Hangzhou and Xi'an rather than buying existing buildings. "The risk-reward is more compelling," he said.



Yields are an important measure of commercial-property values because lower yields typically mean higher prices. They are calculated by dividing the annual income by the price.



Traditionally, yields in Asia are lower than they are in Europe and the U.S. because often there are more buyers chasing fewer properties. Pension funds, sovereign-wealth funds and other institutional investors favor fully leased, well-located buildings and there are fewer of these in Asia. Also, many of these investors, until recently, have been reluctant to venture outside the regional markets they know best.



But lately yields in Asia have fallen to unusually low levels, along with the rest of the world. Buyers can tolerate smaller yields partly because they can borrow at lower costs and the lower returns still look attractive compared with the debt market.



Yields also have been falling in many countries because the annual incomes of properties aren't keeping up with rising prices. Prime office rents in Beijing and Shanghai, for example, have stayed flat over the past two years, according to CBRE, while those in Hong Kong and Taipei rose 2.3% and 1.1%, respectively, in the past year.



In some Asian cities, including Taipei and Beijing, yields are at or near historical lows, according to CBRE. In Hong Kong, they are at similar levels to the last major property boom in 1997. In Tokyo, the yields are at their lowest levels since 2005, CBRE says.







In Taipei, for example, Mercuries Life Insurance Co. Ltd. in April bought almost 8,000 square meters of retail space in the podium at Taipei TiT Tower Square for 3.95 billion New Taiwan dollars (US$131.5 million), with a rental yield of 3%, according to Real Capital Analytics, a real-estate data firm. The seller, Homax Group, acquired the same property in June 2011 at a price of NT$2.8 billion for a yield of 4.5% at the time.






In Singapore, a group of local companies in May bought a 93% stake from Keppel REIT in the Prudential Tower in the city's central financial district for 512 million Singaporean dollars (US$409.3 million). The deal boasted a 3.5% yield, according to Real Capital. By comparison, Keppel REIT in 2011 bought the Ocean Financial Centre, also in the heart of Singapore, for S$2.0 billion in a deal that offered a 5.3% yield, Real Capital says.



Investors have started to leave their comfort zones to find higher yields. Some have targeted Australia. Yields are at 6% in Sydney's and Melbourne's main office districts. Singapore-based real-estate company Hiap Hoe Group bought an office building in Perth for 90 million Australian dollars (US$84.8 million), at a yield of 8.3%, according to research by property firm JLL.



Other investors are seeking distressed properties, hoping to boost yields by increasing revenue. Gaw Capital Partners, a Hong Kong-based private-equity real-estate firm, earlier this year paid US$30 million for the Hyatt Regency Osaka in hopes of turning around a hotel that lost US$10 million in the year ending March. "We saw a lot of quick fixes that we could do and cost-cutting that would make the hotel cash-flow positive right away," said Christina Gaw, managing principal and head of capital markets at the firm.



Some real-estate experts say investors are willing to accept low yields because they feel that property incomes are poised to rise after years of stagnation, especially in Japan as it emerges from a long slump. They point out that commercial property often benefits from rising inflation because it allows landlords to raise rents. "Investors are going into Tokyo with the expectation of rising rents," said Alistair Meadows, international capital group head at JLL.



But others say investors accepting low yields are walking a thin line. Many of them have been trying to boost returns by adding leverage, a risky formula that exposes investors to default if rents or values decline.


Also, if interest rates rise faster than inflation, owners could get squeezed, especially if they have floating-rate debt, experts say. "These tight [yield] rates will have a very small margin of error," said Nicholas Wilson, research manager for capital markets in Asia Pacific, at JLL.


↡ Advertisement
  • Praise 3
Link to post
Share on other sites

By the way, i drove pass Eunos / Ubi area today. Many many units with banners and signs " for rent and for sale" jialat leow. Good luck to all the commercial industrial units investors, heee heee heee...

  • Praise 1
Link to post
Share on other sites

Turbocharged

By the way, i drove pass Eunos / Ubi area today. Many many units with banners and signs " for rent and for sale" jialat leow. Good luck to all the commercial industrial units investors, heee heee heee...

 

same for D10 alot of units with for sale/rent sign... heard a certain newly TOPed condo rental yield is abt 2% liao LOL... supply tsunami rai riaoz

Link to post
Share on other sites

Turbocharged

U havent posted the news that norway SWF gonna invest 260 billion in real estate haha

 

NBIM? Think is 26B lah not 260B

 

same for D10 alot of units with for sale/rent sign... heard a certain newly TOPed condo rental yield is abt 2% liao LOL... supply tsunami rai riaoz

 

2% is with leverage or full cash? If leveraged then no go already. Even if full cash 2% is paltry muayhahaha

  • Praise 1
Link to post
Share on other sites

By the way, i drove pass Eunos / Ubi area today. Many many units with banners and signs " for rent and for sale" jialat leow. Good luck to all the commercial industrial units investors, heee heee heee...

 

BizHub @ Oxley?

 

Huo gai one, the owners all ask for skyhigh price, two year lease, bare unit. Don't even have DB box.. Too many units in one small area, and design of units not very friendly also.. Haha..

  • Praise 1
Link to post
Share on other sites

Supercharged

By the way, i drove pass Eunos / Ubi area today. Many many units with banners and signs " for rent and for sale" jialat leow. Good luck to all the commercial industrial units investors, heee heee heee...

Oxley Bizhub........ its a ghost town there......... [bigcry][bigcry] those owners are sweating in their pants

 

And the garment still got big plans for Paya Lebar airport.... lagi more commercial units to be built soon

 

BizHub @ Oxley?

 

Huo gai one, the owners all ask for skyhigh price, two year lease, bare unit. Don't even have DB box.. Too many units in one small area, and design of units not very friendly also.. Haha..

Last time, got agent approached me to buy this... say until got dragon and tiger. I thought abt it and realised its not worth the $$... too many units.... lucky i didn't go along

Just wait and see....... more price dropping on the way......

 

 

https://sg.news.yahoo.com/home-prices-dip-10-20-ocbc-055711221--sector.html

 

 

OCBC sees residential prices will dip ten to 20 percent over 2014 to 2015.

 

 

However, a price crash in excess of 20 percent is unlikely, even after accounting for the anticipated physical oversupply and interest rate uptrend ahead, according to a recent OCBC report.

 

 

"One key argument against a crash is that we believe there is a high price elasticity of demand in the market largely due to a prolonged period of physical undersupply from 2004 to 2012. Simply put, significantly more buyers will likely come into the market at lower price points, which will slow the rate of decline as prices soften," the statement said.

 

 

Despite the strong sales recoded in May, the report pointed out the take-up rate of 82 percent in the month was lower on a month-on-month and year-on-year basis, as figures for April 2014 was at 125 percent while May 2013 stood at 97 percent.

 

 

Additionally, OCBC's base case is that primary sales for the year will fall: "We forecast FY 14 primary private home sales to dip 33 percent to 10,000 units, and see prices in mass market segment to be more at risk versus the mid-tier and high end."

  • Praise 1
Link to post
Share on other sites

Turbocharged

 

2% is with leverage or full cash? If leveraged then no go already. Even if full cash 2% is paltry muayhahaha

 

cash lol.. waran 2% only ownstay will buy investor wait for yield to expand first, likely means prices fall at the mo

 

Link to post
Share on other sites

Oxley Bizhub........ its a ghost town there......... [bigcry][bigcry] those owners are sweating in their pants

 

And the garment still got big plans for Paya Lebar airport.... lagi more commercial units to be built soon

Last time, got agent approached me to buy this... say until got dragon and tiger. I thought abt it and realised its not worth the $$... too many units.... lucky i didn't go along

Just wait and see....... more price dropping on the way......

 

Haha, few months ago looking at unit there also agent say sure huat one.. End up, some still SMS us now say got new offer / new discount, simi sai eh.. Actually, if Tai Seng MRT got underground link to Oxley still not so bad.. Must cross the road, and no shelter from the hot sun... =X

Link to post
Share on other sites

Turbocharged

That area needs a major major revamp before the owners can expect their values to go up IMO. Now it is mostly a dead area after office hours.

Link to post
Share on other sites

Twincharged

That area needs a major major revamp before the owners can expect their values to go up IMO. Now it is mostly a dead area after office hours.

 

tell me abt it.. i'm always hanging around that area

Link to post
Share on other sites

 

 

https://sg.news.yahoo.com/home-prices-dip-10-20-ocbc-055711221--sector.html

 

 

OCBC sees residential prices will dip ten to 20 percent over 2014 to 2015.

 

 

However, a price crash in excess of 20 percent is unlikely, even after accounting for the anticipated physical oversupply and interest rate uptrend ahead, according to a recent OCBC report.

 

 

"One key argument against a crash is that we believe there is a high price elasticity of demand in the market largely due to a prolonged period of physical undersupply from 2004 to 2012. Simply put, significantly more buyers will likely come into the market at lower price points, which will slow the rate of decline as prices soften," the statement said.

 

 

Despite the strong sales recoded in May, the report pointed out the take-up rate of 82 percent in the month was lower on a month-on-month and year-on-year basis, as figures for April 2014 was at 125 percent while May 2013 stood at 97 percent.

 

 

Additionally, OCBC's base case is that primary sales for the year will fall: "We forecast FY 14 primary private home sales to dip 33 percent to 10,000 units, and see prices in mass market segment to be more at risk versus the mid-tier and high end."

 

Wah say, these analysts, sibei keh jua (add spray)

Wait until now then say things that people already know long ago.

Seems like they are reporting history and not forecasting future.

Damn jialat

Link to post
Share on other sites

 

Haha, few months ago looking at unit there also agent say sure huat one.. End up, some still SMS us now say got new offer / new discount, simi sai eh.. Actually, if Tai Seng MRT got underground link to Oxley still not so bad.. Must cross the road, and no shelter from the hot sun... =X

 

cannot build underground link from Tai Seng to Oxley because of KPE...

Oxley/ubi area got too many TOP within a short period..

 

Furthermore, the traffic there is terrible during morning and evening peak hours..

  • Praise 1
Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...