China Led APAC Real Estate Markets with $31.2B in 2018 Deals

Mainland China’s sales of income-generating properties tallied $31.2 billion in 2018, down 14 percent from the $36.2 billion in 2017, but still 8.3 percent ahead of Japan and Australia which tied at $28.8 billion.

China Comes Out on Top Despite Slowdown

The decline in Asia’s largest income property market is accelerating, with 2018’s decrease in volume compared to 2017 outstripping the previous year’s decline by 57 percent quicker, due in part to a  a tighter lending environment.

China recorded its lowest GDP growth rate since 1990 in 2018, as well as the lowest IP investment volume since 2014. Despite the relatively sour picture, China-based investors were the continent’s largest buyers of income generating property in terms of value, with China Vanke, Hopu Investment, Bank of China, Hillhouse Capital and SMG Eastern, all among the consortium which privatised Global Logistics Properties, forming the top five buyers.

Hong Kong-based companies or individuals including David Chan Ping-chi, Ma Ah Mok and Lo Man-tuen, all of whom were among the buyers of The Center on Queen’s Road, accounted for the next sixth-through tenth biggest buyers of APAC properties, thanks in large part to the $5.2 purchase of the office building, which closed in early 2018. Last year stands in stark contrast to 2017, when only two of the top five buyers in the region were Chinese.

Moreover, RCA’s numbers suggest that investors are still bullish on the the Mainland, with many investors shifting their capital into development projects. Purchases of unfinished Mainland China projects reached $624.4 billion this year according to RCA, up five percent year on year — more than 26 times the size of its closest competitor Hong Kong. This year’s rise in China’s pipeline, however, is dwarfed by that of 2017, when the value of deals for sites under development rose 42 percent to $596 billion.

“International real estate investors from outside Asia Pacific markets, particularly US, Canadian and UK players, appeared unperturbed by the China-led slowdown in the second half and drove 2018 cross-border capital flows into the region 17 percent higher last year at $27.0 billion, to the strongest level since 2008,” said Petra Blazkova, RCA’s Senior Director of Analytics for Asia Pacific.

Australia Pushes Past Japan Among Top Five Markets

While China remained king there were large changes elsewhere in the rankings.

Ranking next in line for trades of incoming generating properties in the region were Australia in the second spot, followed by Japan, Hong Kong, and with South Korea taking the fifth position. In the previous year, Japan had ranked second, followed by Japan, Australia, Hong Kong and Singapore.

Changes in deal volumes were driven by a fall in Japanese project launches (the largest in APAC) and the rapid rise of South Korea — which at $22.7 billion was just $310 million shy of the volume of fourth place Hong Kong in 2018.

This was Tokyo’s slowest year since the 2008 financial crisis, as the country’s listed real estate investment trusts (REITs) slowed-down their purchases amid near-record prices, a factor that also dampened appetite among foreign investors, who completed only four transactions in the city in the last quarter of the year — the lowest deal count since 2009. The city has struggled with high-priced assets at least since 2017, when investors began fleeing Tokyo for regional cities like Yokohama and Osaka in search of higher yields.

Australia remained stable this year, allowing it to slide slightly ahead of plunging Japan. The Australian, investment property market is finally starting to look bright after two years of declining deal volumes, hampered by a lack of investable stock. Yields in Sydney and Melbourne were below their respective 10-year averages in office, retail, and logistics, according to a report by Australia-based M&G Management.

The market of income generating properties in Korea grew 43 percent during 2018, which allowed it to grab the fifth position in the ranking from Singapore, where transactions for mature investment properties dropped 15 percent to $7.6 billion last year. The growth in Korea’s market was driven by Seoul, which rose 58 percent to 17 billion, just 347 short of the quantity in Tokyo, which ranked as the second largest city market behind Hong Kong.

Weak Fourth Quarter Leads into Anxious New Year

In general, Asian markets performed better in the first three quarters than in the last, as investors concerns about market volatility and slower global economic growth flared, according to RCA.

“While property investment started the year strongly, activity decelerated in the second half, with investors concerned about financial market volatility and the weaker economic outlook. But investors were also looking beyond current economic jitters at longer-term structural change in the markets and the industrial market benefitted,” said Blazkova.

Year on year declines in the fourth quarter were most radical in Japan (62 percent), Hong Kong (56 percent) and China (25 percent), where credit tightening measures, announced since 2017, began to be enforced in earnest in the second half of last year.