S'pore, HK property markets seen as highly attractive

Published December 7, 2010

S'pore, HK property markets seen as highly attractive
However, expected returns from their properties are not the best in Asia

By EMILYN YAP

SINGAPORE and Hong Kong are the most attractive markets for property investment in Asia, said Pacific Star Group.

The real estate investment house ranked 11 Asian markets based on a wide range of factors such as economic outlook, projected property vacancy rates, expected total returns, socio-political stability and ease of doing business, and found that Singapore and Hong Kong had the highest aggregate scores.

Beijing, Shanghai, Tokyo and Seoul were some of the next most attractive markets; Ho Chi Minh City was among the markets ranked in the last tier.

Singapore and Hong Kong came out on top for having strong macroeconomic fundamentals, even though expected returns from their properties were not the best in Asia.

For instance, Pacific Star foresees office properties in Singapore and Hong Kong generating a 'single digit' total return in the next 12 months.

This is lower than what other markets may yield - the total return from offices in Beijing or Tokyo could be in the 'low teens', while that from offices in Bangkok or Ho Chi Minh City could be in the 'mid teens'.

'Less attractive markets may present more opportunities to acquire mispriced assets, hence potentially higher total returns, while excessive competition in attractive markets could translate into potentially lower total returns,' Pacific Star explained.

'Ultimately, expected total returns may need adjustments according to perceived risks and the associated premiums required,' it said.

For the residential sector, Pacific Star expects the total return in Singapore and Hong Kong to be in the 'low teens'.

Investors around the world, particularly the wealthy from China and India, favour the two cities, it said.

But in other cities such as Delhi and Ho Chi Minh City, the total return from residential property could exceed 20 per cent.

In Vietnam, rising aspirations of the young population and further development of the home loans market could spur residential demand, Pacific Star said.

In a separate report last month, property consultancy DTZ rated Singapore as a more attractive property investment destination than Hong Kong.

It compared expected returns with required returns, and found that offices in Singapore were 16 per cent underpriced in the third quarter whereas those in Hong Kong were overvalued by 7 per cent

Source; www.businesstimes.com.sg