THE US-China trade war and Hong Kong political unrest has hurt real estate investment transactions across Asia Pacific, but Australia has emerged as a haven for investors.
According to Real Capital Analytics’ (RCA) Asia Pacific Capital Trends Q2 report, total APAC transactions were down 19% year-on-year in the second quarter to US$34.4 billion.
Hong Kong was particularly impacted, political unrest and uncertainty in the city saw deals fall 46% to US$6 billion over the period.
In China and Japan, quarterly investment volumes fell to the lowest levels in a decade, as both domestic and cross-border investment flows dried up. Transactions in China fell down 39% to US$3.2 billion, and Japan declined 18% to US$5.3 billion.
In contrast, Australia defied the negative sentiment with transactions jumping 13% to US$8.4 billion, in value terms. In percentage terms, Singapore saw the highest increase, up 69% to US$2.9 billion.
RCA Asia Pacific managing director David Green-Morgan said Australia’s leading second quarter performance clearly stands out among the top five biggest Asia Pacific real estate investment markets, as there was a sharp uptick in the consolidation of property ownership over the period and a handful of large domestic deals.
“But the generally dismal picture elsewhere, with the notable exception of Singapore, is less gloomy than it may at first appear, because it is being compared with last year’s record breaking deal volumes in key markets.
“The quarterly comparative data should be viewed in the light of extremely strong deal activity in most markets in the first-half of 2018, however, and with the caveat that RCA has already recorded US$10 billion in completed transactions for the third quarter of this year – and with a further US$20 billion pending – indicating Asia Pacific overall could be poised for a bounce-back in the remaining months of 2019,”
Green-Morgan said risk aversion appears to be an important consideration in investors’ decision-making against the current volatile geopolitical and economic backdrop in Asia Pacific and capital is flowing to the largest, most transparent, and liquid real estate markets, rather than to regional or smaller cities.
Of all the capital deployed in the region in the second quarter, 69% was allocated to the eight largest markets – the highest proportion since 2011.
In Australia there were US$2.4 billion of deals involving either multiple owners selling to a single buyer, or partner buyouts.
“Unlike previous quarters, this trend was mainly driven by domestic groups investing in large office assets and an influx of US-based capital into the sector. Australia was the largest recipient of cross-border investment flows in Asia Pacific from April to June and US investor Blackstone stood out, with its US$1.1 billion acquisition of an office portfolio of three assets in Sydney from the Scentre Group,”
Although office yields in Sydney remain stable, around a record low of 4.9%, they are still competitive on a regional and global basis. In Melbourne, office yields have on average moved about 10 basis points higher in recent months.