Asia Pacific continues to provide one of the few bright spots in an increasingly gloomy global economy – and that’s why both local and international investors are buying real estate here.
The recent IMF World Economic Outlook Update for July 2012, delivered a relatively gloomy title ‘New Setbacks, Further Policy Action Needed’. It reports that finding a solution to sovereign stresses in the euro area and avoiding the fiscal cliff in the US, are essential policy requirements to set the global economy back on course.
On a more cheerful note, the IMF also reports that growth in Asia was pulled up faster than anticipated by a rebound in industrial production following disruption to Asia supply chains by flooding in late 2011. These findings were underlined last week by South East Asia’s biggest economy, Indonesia announcing that GDP grew faster than expected in the second quarter, partly due to commodity exports to China. China has seen a slowdown in its GDP output since 2010 when it recorded an annual growth rate of 10.2%. Last year it was at 9.2 % and this year is forecast to come in at 8%, rising to 8.5% in 2013.
The key difference between the economic slowdown in China, as compared to the EU and US, is that the slowdown is a deliberate policy of the Chinese government to subdue demand in order to avoid the economy overheating and the effects of destabilising pro-cyclical capital flows. There is however plenty of underlying demand for goods and services for increasingly wealthy consumers in China. It will be easier for the Chinese government to boost demand if it is required, and this will help the fortunes of nearby economies in the region which supply exports and services to China.
Real estate investors appear to agree and continue to buy commercial property across Asia Pacific. Despite the weaker global economic outlook, Real estate investment volumes in Asia Pacific were up from USD 22 billion in Q1 12 to USD 26 billion in Q2 12. These numbers put us on track to meet last year’s investment volumes.
We hear a great deal about capital flows in real estate, so it’s interesting to note just how big the volumes are from domestic investors and other investors within the region. Of the USD 48 billion in the first half of 2012, local buyers accounted for a shade under USD 36 billon.
Asia Pacific investors buying in other Asia Pacific countries, accounted for another USD 9 billion, and the final USD 3 billion (to make a total of USD 48 billion at the half year) came from the US/ Europe or global funds.
The USD 3 billion in flow to our region has been matched by Asia Pacific investors buying commercial real estate in Europe (mostly in the UK) and the US totalling USD 3.4 billion in the first six months of 2012.
Whilst the inter-regional volumes may look small, compared to last year, it’s a vote of confidence in the region by European and US investors. Last year in the whole of 2011 Asia Pacific buyers spent USD 7.8 billion buying real estate outside the region compared to the USD 4.2 billion by inter regional investors. With inter regional investors already spending USD 3.4 billion here in the first six months of this year, it looks like they may exceed last year’s total.
