Asia Q1 property investor sales dive 83%

Source : Business Times – 12 May 2009

Weak risk appetite, expectation gap between buyer and seller deter activity

Asian property investment sales slumped 83 per cent quarter-on-quarter in the first three months of 2009 as risk appetite remained weak and the gap between buyer and seller expectations continued to deter activity, according to a report by CB Richard Ellis (CBRE).

Preliminary data for Q1 2009 found that Japan, Singapore and Hong Kong suffered the biggest falls in transaction volume.

The industrial property sector suffered the largest drop by market segment, plummeting 95 per cent from the same quarter a year earlier. Office transactions sank 89 per cent, while retail transactions shrank a much smaller 40 per cent.

However, there was a noticeable improvement in sentiment in some key markets in March, as the rate of economic decline appeared to ease, CBRE notes.

‘The overall property investment market in Asia was generally subdued and remained in a prolonged state of price discovery,’ its report says. ‘The period was characterised by isolated and small investment transactions across certain markets.’

The largest transaction in Q1 was the sale of the Sogo Department Shinsaibashi Store building in Osaka – which has retail space – for US$383.6 million.

Although cash rich investors continued to be interested in acquiring quality assets for the long term, the credit crunch, uncertainty over market direction and a significant gap between asking prices and what buyers are willing to pay put a dampener on activity.

Nevertheless, CBRE notes that a number of new funds were established in Q1 2009 to capitalise on opportunities arising from the current distressed market – a trend first noticed in Q3 and Q4 2008.

Market by market, CBRE’s data shows Singapore experienced a further decline in investment sales in Q1 2009, seeing only isolated transactions.

Investment sales here during the quarter totalled $204.2 million, a decline of 51.8 per cent from Q4 2008 and a fall of 97.7 per cent from a year earlier. The last time quarterly investment sales were so poor was in Q1 1998, when they totalled $49.28 million, and Q3 1998, when they were $110.62 million.

In Hong Kong, institutional investment activity evaporated as investors in Q1 this year continued to find it difficult to raise debt and equity.

However, commercial banks gradually relaxed their requirements on property lending and lower their mortgage rates during the quarter as interbank liquidity increased after several rounds of government intervention.

Driven by these two factors, the number of investment deals under HK$100 million (S$18.8 million) picked up considerably towards the end of the quarter, as did demand for new residential housing units.