China Leads Asia Pacific’s Real Estate Transaction Volumes

China overtook Japan to lead Asia Pacific’s commercial real estate investment volumes in the second quarter of this year as demand for office and retail space in core cities rose, according to JLL’s Global Capital Flows report.

In Hong Kong, volumes more than doubled following New World Development’s deal with Abu Dhabi Investment Authority while in South Korea, the data showed that MERS did not dampen investors’ confidence.

Volumes in China’s market accelerated in the quarter, with transactions in the three months to June rising 54 percent from the same period a year ago to USD 7.9 billion.

Liquidity was driven by funds seeking top grade assets with strong yields while sentiment improved in tier-1 cities such as Guangzhou and Shenzhen, according to the report. The strong numbers came ahead of China’s recent share plunge.

“Recent volatility seen in the China equity market may potentially slow investment decision process and lead to more outbound investments,” says Megan Walters, Head of Research, Asia Pacific. “However the impact may be mitigated by the trend towards lower interest rates and bank reserve requirement ratio, which will likely reduce costs of borrowing and provide support for China’s real estate investment market.”

Investment volume in Japan, the regional leader in the last quarter, fell to second spot. Transaction volume dropped 23 percent year-on-year to US$6.4 billion. “Looking ahead, there is still ample liquidity as more equity funds were raised in the quarter and foreign investor demand remains at unprecedented level on the back of a weak currency,” says Walters.

Elsewhere in the region, performances were mixed. Below is a summary of performance of other markets in Asia Pacific:

Hong Kong : ADIA’s hotel portfolio deal boosts volumes

Transaction volumes for the second quarter more than doubled year- on-year to US$3.8 billion. This is largely supported by the three hotel property portfolio platform deal between Abu Dhabi Investment Authority (ADIA) and New World Development for US$2.4 billion. JLL sees an active second half as local sellers become more negotiable in pricing and with more deals scheduled in 3Q15.

South Korea: Impact from MERS limited

South Korea saw US$3.2 billion worth of transaction volumes, up 23 percent year on year. The risk from MERS (Middle East Respiratory Syndrome) is receding, with effects seen mostly in the hotel and retail sectors. For the second half, more assets may be put on sale, given the soft leasing market with wealth managers and insurers seen to be on the lookout to buy.

Singapore: Second half volumes may rise even more

Transaction volumes in Singapore climbed 6 percent year on year to US$3.8 billion in the first half of the year primarily led by a US$863 million AXA Tower deal in 1Q15, brokered by JLL. Looking ahead, two large CBD office assets that are for sale may help further boost volumes. The downside risk associated with soft economic and property market fundamentals did not seem to have deterred potential investors.

Australia: Cross-border transactions dominate

Transaction volumes in Australia were US$4.4 billion, down 44 percent year on year but up 74 percent compared with the first quarter. The year-on-year fall was due to several factors including investors waiting to see the outcome of the Investa Property Group platform sale, limited availability of good quality stocks and a lower AUD masking transaction volumes in USD term. Cross-border transactions accounted for 52 percent of total deals by volume. Transactions are expected to pick up in the second half, helped by the weak AUD.

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