Weather Is Set Fair For Asia's Big Property Markets This Year - Schroders

Chrissy Coleman

11 January 2013

Property markets are well supported, despite a sluggish global economic backdrop, owing to forthcoming supply shortages, liquid Asian markets and access to cheap debt capital, said asset management firm Schroders in its 2013 outlook, giving an overview of the Chinese, Hong Kong and Japanese markets.

Schroders, which is oversees a total of $327 billion of assets , gave its views on the following jurisdictions markets:

China

“2012 was a strong year for quality Chinese residential developers, with share prices up 50-130 per cent – albeit from a low base. The high-quality companies hit their full-year sales targets as early as September in 2012, and sales data remained strong into the year end,” said Jim Rehlaender, global property securities fund manager at the firm.

He added that there are visible indicators suggesting further increased demand from Chinese buyers, namely, improved Chinese economic data and continuous efforts from the country’s government to stimulate growth. Consequently, Rehlaender predicts 10-15 per cent upside in Chinese property stocks in 2013.

Hong Kong

Hong Kong property share price gains however, have been less fruitful compared to the neighbouring mainland as a result of the recent introduction of a special stamp duty in an attempt to cool escalating high-end residential property prices. Despite expecting a recovery in the residential sector, Schroders focused on commercial property.

“The big risk for Hong Kong in 2013 is if US interest rates rise. If the Federal Reserve increases interest rates it will have a direct impact on mortgage rates in Hong Kong,” said Rehlaender.

However, as there would have to be robust evidence of economic growth in the US before the Fed would raise rates, such a move would not be negative for the property sector overall, Schroders said, and the firm does not expect increased interest rates before 2013.

Japan

Turning its attention to Japan, Schroders said the country’s property sector continues to benefit from a steady decline in supply and a shift away from earthquake prone buildings to A-quality properties.

“While the markets outside of Tokyo are stagnating from the weight of an overall sluggish economy, Tokyo is recovering and the Japanese development companies are leading the charge,” said Rehlaender.

He added that with no major additions to supply on the horizon, rental rates are predicted to rise steadily throughout the coming year, regardless of the pace of domestic economic growth. Japanese companies are currently trading at 25 per cent below net asset value, which Schroders believes is 10 per cent over discounted.

In should also be noted that Asian investors are increasingly looking beyond domestic markets for property investments. For instance, The Central London Market Q3 2012 report by real estate specialist, Jones Lang LaSalle, said that overseas purchasers accounted for a record 80 per cent of city office transactions in 2012, compared with 63 per cent in 2011, and a long term average of 57 per cent.