ASIA MARKET SNAPSHOT
CAPITAL MARKETS & INVESTMENT SERVICES
Q3
16
2 | ASIA MARKET SNAPSHOT Q3 2016
CAPITAL MARKETS & INVESTMENT SERVICES
A REGIONAL VIEW
HONG KONG
The ‘too close to call’ presidential elections in the United States in November, coupled with the
simmering economic fallout from the United Kingdom’s decision to withdraw from European
Union has meant investors continue to focus their attention on Asia in Q3 2016.
The Hong Kong real estate market saw a surge in investment activity in Q3 2016, with office
transactions leading the broader investment market.
This was bolstered by the definite showing that China has steered clear of a hard landing.
China’s official released data in September was very encouraging; August industrial output rose
6.3% year on year and a whopping 10.6% hike for retail sales. Infrastructure investment was
also strong, after a sharp drop in July.
An important story at the moment is certainly of the office sector. In Hong Kong and Philippines,
it stood clearly as the Q3 major sector mover. It is the sector to watch in Q4 across Asian
markets from Shanghai, Beijing, Chengdu, Taipei, India to Singapore.
There are several other trends that we note across Asia:
End users are creating demand for office properties in markets such as Hong Kong,
Shanghai and Taipei.
Regulatory changes in India are creating increased institutional demand for property,
with the introduction of the first REIT due next year.
Both Indonesia and Philippines, under new leadership, are embarking on strong
infrastructure spending. Hence, it is worthwhile for keen investors to move in early to
undertake apt investment analyses since land along new transport lines generally
appreciates in value.
Our Asia Market Snapshot aims to offer our latest take on the various property markets in
the region, along with advice from my colleagues in Asian markets, to help you make more
informed investment decisions.
TERENCE TANG
Managing Director
Capital Markets & Investment Services I Asia
ANTONIO WU
We saw a number of major transactions,
including the sale of the Golden Centre for
HKD4.37 billion (USD563 million), the sale of
five floors of Kowloon Commercial Centre for
HKD1.41 billion (USD182 million), the sale of EIB
Centre for HKD1 billion (USD129 million), and
the sale of a large part of Continental Place for
HKD1.13 billion (USD146 million). Strata-titled
office property in core locations such as the Far
East Finance Centre and Bank of America Tower
also recorded a number of record-high unitrate transactions, including the sale of the 32nd
floor of Far East Finance Centre for HKD33,900
(USD4,372) per sq ft and the sale of the 22nd
floor of the same building for HKD32,900
(USD4,243) per sq ft. Separately, the top floor
of the centre changed hands for HKD37,800
(USD4,875) per sq ft early in the quarter.
new developments such as Lime Gala, Grand
Yoho by Sun Hung Kai Properties and Commune
Modern by Sino Land all achieving overwhelming
sales results.
Transactions also picked up for retail real
estate, mostly in non-core locations. Major deals
included the sale of the retail podium of Kiu Fat
Building for HKD648 million (USD84 million),
the sale of part of the retail podium of Yuccie, at
129 On Lok Road, for HKD630 million (USD81
million), and the sale of the majority of the retail
shops of Orion Court, at 15-23 Mau Tan Street,
for more than HKD350 million (USD45 million).
BIGGEST DEAL
On the residential side, transactions also picked
up significantly, with a number of launches of
Going forward, we expect the market to trend
upwards barring any major shock such as a
sudden spike in interest rates.
EN BLOC
TRANSACTIONS
MAJOR MOVER Q3
3
OFFICE
OFFICE, GOLDEN CENTRE
$563M
ASIA MARKET SNAPSHOT Q3 2016 | 3
CAPITAL MARKETS & INVESTMENT SERVICES
BEIJING
CHENGDU
In contrast to the active residential market, en bloc transactions of office, retail and industrial
properties were rare in Q3. Given the stable rental income that it produces, both local and
overseas institutional investors expressed a preference for Grade A office property in core areas
of Beijing, but the high asset prices caused by the limited supply made them cautious about
executing deals.
In Q3 2016, the Chengdu investment market was quite active, with three en bloc office
transactions announced. Meanwhile, the residential market has sustained increases in both sale
prices and transaction volumes.
WANG YANG
Emerging neighbourhoods such as the Lize
Financial Business District also attracted
attention from investors, with this district
emerging as a new financial district. The initial
land development has now completely finished,
and potential buyers are expected to focus on
the new office supply that will emerge.
One noteworthy deal involved the Beijing Sun
Palace Parkson shopping centre, with Parkson
Retail Development sealing a deal with ZRiver
Capital and its subsidiaries in mid-September.
The Parkson group intends to fund business
expansion with the sale, which fetched CNY2.32
billion (USD350 million) through the disposal of
an indirect wholly-owned subsidiary that holds
the subject property. ZRiver Capital is a local
real estate fund that is wholly owned by ZRT,
a stated-owned trust company. With risk-free
interest rates so low, Chinese insurance and
trust companies that hold long-term capital have
been targeting prime commercial properties for
the stable long-term returns that they produce.
JACKY TSAI
EN BLOC
TRANSACTIONS
SECTOR TO
WATCH Q4
3
DECENTRALISED DISTRICTS
OFFICE
RETAIL,
BEIJING SUN PALACE PARKSON
BIGGEST DEAL
$350M
On the office front, oversupply and the high
vacancy rate are still concerns for most
investors. Still, high-quality assets in prime
locations continue to attract attention. Also, to
lower the risk for investors, some properties are
now offering a guaranteed return. For instance,
the approximate 80,000 sq m Chengdu Yintai
Centre office towers two and three, which were
respectively sold to Huaxia Insurance and Ping
An Insurance adopted this technique.
On the retail front, the most noteworthy
transaction was CapitaLand Retail China Trust’s
acquisition of the Galleria for CNY1.5 billion
(USD225 million). The property is a 53,619 sq m
shopping mall in the Gaoxin district of southern
Chengdu, and has a 100% occupancy rate.
The three en bloc transactions broke a silence
of almost two years for the commercial
investment in Chengdu. Now that Chengdu has
been selected as a Free Trade Zone, the market
should continue to attract both developers and
institutional investors.
EN BLOC
TRANSACTIONS
3
SECTOR TO
WATCH Q4
DUE TO FREE TRADE ZONE
OFFICE
RETAIL, GALLERIA
BIGGEST DEAL
$225M
4 | ASIA MARKET SNAPSHOT Q3 2016
CAPITAL MARKETS & INVESTMENT SERVICES
INDIA
INDONESIA
The market continues to be extremely slow. However, certain current policies such as the likely
introduction of a goods and services tax may have a positive impact and help improve the overall
business atmosphere. The Real Estate Regulation and Development Act (RERA) has also passed,
which should lead to a revival of interest in the real estate sector. The commercial market in
particular looks positive.
Office demand has dwindled over the last two years, which has bolstered the negotiating power of
tenants. New office buildings added further downward pressure on rents because of the additional
space they have added to the supply. There have been no major office transactions recently in the
greater Jakarta market.
SURESH CASTELLINO
Further relaxations in the real estate investment
trust (REIT) policy have resulted in a bullish
mood with institutional investors. Investors
are willing to take aggressive calls and invest
in development projects, pricing being the key.
With the first REIT scheduled to be introduced
by mid-2017, we expect increased demand for
commercial leased assets.
Large foreign direct investors have begun to
show interest in industrial and warehouse space.
The introduction of the goods and services
tax should also lead to increased demand for
this segment. The retail sector is also looking
up. Investors were extremely bearish on the
outlook for retail space for several years, with
almost no transaction in the sector. For both
retail and industrial space, it is an opportunity to
get access to foreign capital and create a more
mature market in India.
It will take a few more quarters for residential
real estate to turn around. The vast majority of
investors are very sensitive to entry prices. It
has been a learning curve for most investors,
with many now having developed a better
understanding of the market. Those players are
now gearing up again for the opportune time to
increase their investment holdings.
STEVE ATHERTON
MOST DEALS
TRANSACTED Q3
SECTOR TO
WATCH Q4
RESIDENTIAL
OFFICE
TOWNSHIP, PUNE PROJECT OF
KUMAR URBAN LTD (KUL)
MAJOR INVESTMENT
$45M
During Q3, apartment sales continued to languish,
showing a moderate 0.5% growth in price compared
with the previous quarter. There were 4,777 new
units from the handover of a total of eight apartment
towers from five projects. Prices of apartments have
been relatively flat as most of the projects hold prices
down to attract buyers. The average asking price of
apartments in Jakarta was IDR31 million (USD2,375)
per sq m (excluding VAT), with prices also up a
modest 0.5% compared with the previous quarter.
Most developers are focusing on selling existing
inventory rather than starting new project launches.
The industrial market has yet to recover from
generally slow sales performance, which has led to
further downward pressure on industrial land prices.
Two industrial estates reportedly introduced prices
which were lower this quarter by an average of 8%.
Tourism is one of five designated priority sectors
for the administration of President Joko “Jokowi”
Widodo. The Public Works and Public Housing
Ministry as well as the Transportation Ministry have
pledged to prioritize the development of infrastructure
in 10 areas listed recently as the country’s priority
tourist destinations. In addition to the government’s
strategic scheme to build 796km of new roads
next year, the investment would also extend to
sanitation, clean water, and waste management. The
government has proclaimed a target of attracting
20 million foreign tourists a year by 2019, twice
the 2015 figure. While the government’s efforts are
well intended, to achieve good results in 10 different
priority tourist destinations and being able to attract
20 million foreign tourists by 2019 appear to be very
ambitious. There is likely to be more growth in the
undeveloped parts of Bali than any of the 10 new
priority tourist destinations.
Lastly, regarding the new tax amnesty, the amount of
tax retribution collected to date has reached IDR11.23
trillion (USD864 million), which only accounts for
6.8% of the target set at IDR165 trillion (USD 12.6
billion). From 59,567 declaration letters received,
the total amount of repatriated domestic assets has
amounted to USD26.4 billion, whereas the amount
from foreign assets has amounted to USD8.8 billion.
If the tax amnesty programme is even modestly
successful, it is expected to have a positive impact on
the Indonesian property market driven by increasing
demand and consequently prices, especially with the
gradual new supply reduction.
MAJOR MOVER Q3
AVERAGE DEAL
RESIDENTIAL
RESIDENTIAL
$2,375/SQM
ASIA MARKET SNAPSHOT Q3 2016 | 5
CAPITAL MARKETS & INVESTMENT SERVICES
MYANMAR
PHILIPPINES
The continued uncertainties relating to the suspension of over 200 projects in Yangon for
investigations into building and planning irregularities have cast a long shadow over the real estate
investment climate in the city. Most deals and plans have been put on hold, awaiting greater clarity
as to future zoning and building codes in Yangon. There are some silver linings with the final lease
approval of the Landmark mixed-use development in downtown by Yoma Strategic Holdings and
various foreign investors, including Mitsubishi Estate. The development had been delayed for the
past three years. There has also been progress on the submission of bids for the 62-acre Central
Railway Project, which is also in downtown.
Economic growth in the Philippines remained rosy in Q3 2016. The growth was primarily driven
by increased foreign investment inflows, higher household expenditure, modestly increasing
remittances from overseas workers, and the intensification of public infrastructure spending.
ANTHONY PICON
Investors await new zoning regulations for
Yangon from the new government, led by the
National Lead for Democracy, which should set
out a more consistent approach to the approvals
process. At the same time, new investment law
is being drafted that should also be positive, with
the possibility of foreign companies securing
long-term leases without approval by the
Myanmar Investment Commission. In addition,
new companies act may allow minority foreign
ownership of freehold land in Myanmar.
Overall, as a result of the various unresolved
issues, investors remain in a holding pattern.
This may change in Q4 2016 if there is positive
progress by the government.
IEYO DEGUZMAN
EN BLOC
TRANSACTIONS
SECTOR TO
WATCH Q4
1
SERVICE
APARTMENT
HOTEL, SEDONA MANDALAY
BIGGEST DEAL
$41M
The accelerated economic growth was echoed
by the office property market, where strong
demand and high occupancy levels have been
sustained by “outsourcing and offshoring”
businesses. Vacancy in metro Manila’s main
business districts is just 3% across all grades
and forecast to remain tight until the end of
the year. As a result, rents continue to rise and
are forecast to rise 8% to 10% over the next
12 months. The revival of interest in strata-title
office property led to a brisk pace of sales to
local individual investors since second half of
last year.
The retail property sector is likewise on an
upward trajectory, backed by steadily improving
purchasing power and consumer confidence.
International retailers are expanding their
presence in the country, as are restaurant
chains. There were non-food expansions from
Estee Lauder, Promod, Uniqlo, and Aeropostale,
to name a few. Both foreign and local retailers’
high demand for expansion space is expected
to spur the continuing trend of township
development and mixed use property with retail
complex as an integral component.
The industrial property sector benefits from
that growth in the retail industry. Demand
for warehouse space, distribution centres
and logistic hubs is increasing significantly.
The demand from manufacturers and other
industrial operators for expansion space will
be heightened by the implementation of vital
infrastructure projects.
Meanwhile, the outlook for residential
condominiums remains subdued due to concern
over a supply overhang.
EN BLOC
TRANSACTIONS
1
OFFICE, RETAIL
& INDUSTRIAL
MAJOR MOVER Q3
OFFICE, ACCRALAW OFFICE TOWER
BIGGEST DEAL
$75M
6 | ASIA MARKET SNAPSHOT Q3 2016
CAPITAL MARKETS & INVESTMENT SERVICES
SHANGHAI
SINGAPORE
In Q3 2016, there were four en bloc transactions as a result of demand from domestic investors
and end users in Shanghai.
Q3 transactions totaled SGD5.92 billion (USD4.35 billion), reflecting a 31% decline from Q2,
which was championed by the sale of Asia Square, the largest-ever single-tower real estate
deal in Asia. Q3 was instead dominated by the residential sector, accounting for 52.2% of total
sales. However, we anticipate that the commercial sector will take the lead in Q4 because there
are several large office deals brewing, including the sales of 77 Robinson Road, Capital Square
and the Afro Asia Building. Investors are also keenly watching the government’s call for tender
on the 1.1 hectare white site at Central Boulevard, close to Asia Square. The tender closes on
8 November 2016, and some market watchers have predicted that bids will exceed SGD1,300
(USD955) per sq ft per plot ratio.
BETTY WONG
Domestic end users continue to show high
levels of interest in the office market. In the last
two quarters, we have seen the transaction of
several office buildings to end users in Hongkou
North Bund and the Minhang Hongqiao areas.
During Q3, Pudong Zhuyuan became a new
destination for end users, as evidenced by the
acquisition of SOHO Century Plaza by Guohua
Life Insurance to be used as their headquarters.
There were another three deals transacted by
investors, mainly from a domestic background.
Other sectors that have attracted attention
include serviced apartment, which continue to
see increased investment as a result of robust
demand for residential properties and stiff
competition for the residential land market.
Meanwhile, stable income-producing or valueadded retail assets in prime locations with high
population density have also demonstrated good
performance due to the increase in the supply of
suitable properties.
As for the foreseeable future, there are several
deals in the negotiation stages or already
pending. Those should close in the next three
to six months. Capital values and rents are
expected to continue to rise, while the yield for
core assets is expected to decrease moderately.
TANG WEI LENG
EN BLOC
TRANSACTIONS
SECTOR TO
WATCH Q4
4
OFFICE &
SERVICE
APARTMENT
OFFICE, SOHO CENTURY PLAZA
BIGGEST DEAL
$485M
Notable transactions in Q3 included Mapletree
Commercial Trust’s acquisition of Mapletree
Business City in southern Singapore for SGD1.78
billion (USD1.31 billion) in July 2016, as well
as three aggressively contested governmentland-sales sites that were sold for residential
developments. The tenders attracted an average
of 14 bids, with spreads of 1.3% bet`ween the top
two bids.
The average island-wide private residential
price has declined 9.4% since the last peak in
2013. We believe that Singapore could adjust
its cooling measures if the fall reaches double
digits. In the core central region, rents fell 9.3%
and are expected to continue to decline. That will
stabilize when the existing supply is absorbed
and depleted by 2019, with no known new
supply at this point. Also in core central region,
CDL bought the 50% stake of its partner Wing
Tai Holdings in Nouvel 18 for SGD410 million
(USD301 million), or SGD2,348 (USD1,725) per
square foot. On the luxury front, domestic buyers
spent some SGD289 million (USD212 million)
on what are called Good Class Bungalows
(GCBs) in Q3.
The government has recently refined rules on
the total debt-servicing ratio. The adjustments
give borrowers more flexibility to refinance
their existing property loans at the current low
interest rates, easing their debt obligations.
Moving forward, we envisage fewer cases
of liquidity squeeze and foreclosure. We also
foresee a recovery in interest from buyers in
residential property. The charts seem to signal
that prices bottomed in Q1 2016.
COMBINED
TRANSACTION
VALUE
MAJOR MOVER Q3
SECTOR TO
WATCH Q4
$4.35B
RESIDENTIAL
DUE TO PENDING DEALS AND
GOVT LAND TENDER
OFFICE
ASIA MARKET SNAPSHOT Q3 2016 | 7
CAPITAL MARKETS & INVESTMENT SERVICES
TAIPEI
THAILAND
Overall, the market continues to decline, mainly due to recent property tax reforms. Local
governments began raising property holding taxes in 2014 in response to public opposition to
high property prices. As a result, current property holding taxes are between five to 18 times
higher than before 2014. However, such a tax system has caused fierce debate and local
governments have been forced to review it carefully. We expect the government to adjust the
property holding tax system, probably in 2017.
Market sentiment improved in Q3 with the passing of a constitutional referendum, which has
increased consumer confidence in the property market. Private sector consumption is expected
to increase due to heavy spending on infrastructure by the government.
DEREK HUANG
The largest transaction during Q3 was
from a self-use buyer. ASUS purchased
an industrial plot in Guandu, Taipei City for
NTD7.83 billion (USD244 million), planning
to develop it as its own office building.
Office remains the most sought-after sector
due to robust demand as well as limited supply.
In the past five years, dozens of en bloc office
buildings in Taipei City have been converted
into hotels or are designated for redevelopment
into residential real estate. This historical
trend reduced almost 200,000 sq m of office
space, which accounts for 4% of total stock.
As a result, en bloc office assets are scarce.
Fubon Life Insurance spent NTD4.08 billion
(USD127.5 million) on the Tokyo Enterprise
Building, which is a well-known landmark in
the Xihu section of Taipei Neihu Technology
Park. Xihu is the prime location in Neihu
Technology Park due to its great accessibility
and amenities. It enjoys continuous high
occupancy, with high-quality tenants as well.
There has been active demand from
occupational buyers. On the other hand,
local insurers may be more active in Q4
because they have sizeable amounts of
capital allocated for real estate investment.
SUNCHAI KOOAKACHAI
EN BLOC
TRANSACTIONS
SECTOR TO
WATCH Q4
2
DUE TO ROBUST DEMAND
AND LIMITED SUPPLY
OFFICE
INDUSTRIAL PLOT, GUANDU, TAIPEI
BIGGEST DEAL
$244M
The investment sector is still performing
reasonably well, with large listed residential
developers continuing to buy prime land along
mass transit routes for new mid- to high-end
projects as well as acquiring new assets through
mergers and acquisitions. The continued
strength in high-end condominium demand from
listed developers is somewhat surprising in view
of tight lending policies by banks which have
put pressure on the general market. Demand for
Grade A and B office space in all main locations
in Bangkok is strong.
High-net-worth individuals and corporates
continue to face pressure from low interest
rates. In the wake of the new property tax laws
that are scheduled for Q1 2017, landlords are
rethinking strategies, especially with regards to
holding undeveloped land. As a result, we expect
an increase in land transactions in Bangkok and
the surrounding area next quarter.
NEW PROPERTY TAX LAWS
SECTOR TO
WATCH Q4
DEVELOPMENT
LAND
Capital Markets & Investment Services (CMIS)
LINA WONG
China
WANG YANG
[email protected]
BETTY WONG
East and Southwest China
[email protected]
North China
[email protected]
KICHOON JUNG
Korea
[email protected]
ERIC LAM
South China
BRETT JENSEN
[email protected]
Osaka
[email protected]
JACKY TSAI
Southwest China
[email protected]
JAMES FINK
Tokyo
BAYAN KUATOVA
[email protected]
Kazakhstan
TERENCE TANG
[email protected]
DEREK HUANG
Asia
IMRAN MOHIUDDIN
Taiwan
[email protected]
[email protected]
Pakistan
[email protected]
ANTONIO WU
Hong Kong
SURESH CASTELLINO
[email protected]
India
DOMINIC CHUNG
[email protected]
Hong Kong
[email protected]
ANTONY PICON
Myanmar
IEYO DE GUZMAN
[email protected]
Philippines
[email protected]
SUNCHAI KOOAKACHAI
Thailand
DAVID JACKSON
[email protected]
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TANG WEI LENG
Singapore
[email protected]
Vietnam
[email protected]
STEVE ATHERTON
Indonesia
[email protected]