Supported by international investors continuing to diversify their real estate portfolios, Asia Pacific has recorded a steady flow of international capital, with investment turnover increasing by 9 percent year-on-year to US$13 billion in H1 2015, according to CBRE’s Asia Pacific Investment Guide 2015, which provides an overview of the investment terms, foreign ownership restrictions and key investment features of 15 markets.
Richard Kirke, managing director, CBRE capital markets Asia Pacific, said, “Asia Pacific’s real estate is continuing to demonstrate strong, sustained fundamentals. Relative to the volatility being witnessed in global equity markets, APAC real estate provides investors with superior risk-adjusted returns.”
Diverging Approaches: Deregulation and Curbs
Real estate-related levies are playing a larger role in selected markets with the aim of curbing speculative investor activity. A number of markets have already imposed preventive measures: In 2013, Singapore introduced a more rigorous debt servicing ratio while Hong Kong doubled the stamp duty on foreign property investments. Meanwhile, consumption tax in Japan is set to further increase to 10 percent by 2017, while China’s Value Added Tax (VAT) will be widened to encompass a broader range of real estate-related services.
Ada Choi, senior director, CBRE Research Asia Pacific, said, “In recent years, country governments have increased taxation and tightened lending on property transactions as part of wider cooling measures in domestic markets. Despite the higher financial burden on real estate investment, the investment demand in Asia Pacific remains high. These policies are therefore expected to largely remain in place.
“We’re also seeing more investors showing a preference for core assets—which require lower leverage ratios—and being backed by international and regional institutional capital. As a result, they are less affected by the limitations on leveraging and the higher transaction costs which are aimed at dampening speculation.”
Conversely, a number of emerging economies, particularly in the Southeast Asian region, have relaxed restrictions on foreign direct investments in a bid to attract overseas capital to boost domestic growth. Deregulation measures include permitting full foreign ownership of properties in markets like Vietnam and full ownership of luxury residential condominiums in Indonesia, whereas India and China are allowing for more flexible investment policies such as lowering minimum capital requirements and the easing of exit norms.
“In addition to the ongoing urbanization and rapidly expanding middle class in many emerging economies, the policy shift of some governments to more open foreign investment policies sends a clear and positive signal to international investors. Given these additional incentives, coupled with many global funds still being relatively underweight in APAC, it is not surprising that capital seeking real estate is at record levels,” said Kirke.
With more forthcoming relaxation measures expected, it is anticipated that there will be a notable reduction of barriers to market entry for foreign direct investments in the coming years. Nevertheless, investors should be mindful of domestic restrictions on capital repatriation and currency volatility and plan accordingly.