Asian property players lack hunger

The Global Investor Sentiment Survey,which annually takes the pulse of property investors worldwide, measuring their risk appetite, optimism, key concerns and overall market outlook this year wasconducted in the first two weeks of August 2011 using a series of targeted questions. 

In Asia, the majority of investors surveyed remain optimistic in property investment.  Some 65per centof the overall respondents indicatedthat they wouldvery likely expand their property portfolios in the next six months. 

“Office assets in Beijing and Shanghai are the Asian investors’ top preferences,” said Piers Brunner, chief executive officer of Colliers International Asia. “This is followed by residential or office property in India, while industrial property in Singapore and China came in third. The findings also revealed that most investors place their bets in their own region.” 

Despite a willingness to buy, investors in Asia are not compelled to move out of the risk curve in order to achieve superior returns. The survey also found that 35per centof Asian investors mentionedthat uncertainties surrounding both global and regional economic conditions wasa major deterrent in their purchase decision, while 31per centsawa lack of supply of “for sale” property at their target internal rate of return (IRR)as the main obstacle.  

“When asked on their target IRR for investments, a vast majority of the Asian respondents (over 75per cent), indicated that they typically aim for 15 per cent IRR or higher. This is much higher than the average 40 per cent investors globally who concurred to the same IRR target,” added Brunner. 

“A high IRR target is an indication that Asian investors are currently riding high on their risk adversity by only wanting to invest on properties which are able to generate returns strong enough to offset any possible negativity. This correlates to the survey findings which also revealed Asia to be currently the lowest in terms of risk appetite,” said Brunner. 

Reduced risk appetite varies across the region, however, according to the survey findings, 69per centof Asian investors expressed that they felt a tightening of credit as compared to six  months ago.   

“The credit scene in Asia has gone through tremendous changes. Investors face more challenges when it comes to credit accessibility with rising cost of debt and a shrinking loan-to-value (LTV) ratio,” said Brunner.   

The survey disclosed that 77per centof Asian investors said cost of debt hadincreased, while 54per centpointed out that the maximum LTV ratio decreased. 

The survey also revealed two emerging trends in Asia: reducing interests in owning older and more obsolete commercial property and greater anticipation in demand for sub-urban office spaces. Besides that, rental growth in Asia is expected to be increased.
 
Simon Lo, executive director of research, Asia, said: “Despite key concerns in Asia such as global economic growth uncertainty, geo-political upheaval, the threat attributed to sovereign debt default and changes in local government, Asian investors believe that real estate will continue to be a good hedge against inflation.”

“This is also further boosted by the recent surge in commodity prices - price of construction materials such as steel and cement have increased – which pushed up real estate prices,” added Lo.