Emerging markets in asia pacific

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<ul><li>1.EMERGING MARKETS IN ASIA PACIFIC A Cushman &amp; Wakefield Research PublicationNOVEMBER 2013EXECUTIVE SUMMARY Real estate investment sentiment is turning favourably towards the emerging markets. In the first half of 2013, capital into the regions emerging markets grew 49.3%, as compared to the same period last year.While an outright rebound in sentiment is not likely, with higher volatility due to tapering risks and lingering trade and fiscal deficits, the long-term growth story has not gone out of fashion with investors.State-linked companies account for a bigger portion of the capital, as compared to core markets. Institutional funds remained sidelined by a lack of investment grade assets.On the whole, real estate investment in the regions emerging markets are still evolving, with transparency and market access as well as political risks continually being assessed against the regions economic potential.1</li></ul><p>2. EMERGING MARKETS IN ASIA PACIFICNOVEMBER 2013EMERGING MARKETS IN ASIA PACIFIC A Cushman &amp; Wakefield Research Publication EMERGING MARKETS OVERVIEW Real estate investment sentiment in Asia Pacific has turned favourably towards the emerging markets. In the first half of 2013, capital into the regions emerging markets grew 49.3%, as compared to the same period last year. Deals in the emerging markets have mainly surged due to the amount of capital being invested into development land sites in Chinas tier two and three cities. The majority of land deals were done in the second and third tiered Chinese cities, where development opportunities, especially in residential developments, drove investments. Land sales in these markets increased by 60.7% year-on-year as compared to the first half of 2012. Despite the clampdown in credit growth, rapid urbanization and infrastructure needs will drive growth in these lower-tiered cities, where an estimated 200 million people is expected to flock to the cities in the next decade. Excluding land sales, investment volume fell 49.6% across the region. The fall was experienced across the region, save for Vietnam, which saw some sizable deals struck for its retail and hotel assets. All sectors, save for industrial properties, declined. The increased outlay into the industrial sector was seen across the region. Investor interest into the regions industrial sector this year is palpable, driven by increasing intra-Asian trade, which spurs demand for logistical infrastructure, in addition to the higher yields that industrial assets provide, as compared to those in the office or retail sector. Foreign capital comprises about 5.6% of total capital invested in the regions emerging markets, down from the 7-9% achieved in previous quarters. An overwhelming majority, at 90.7%, was ploughed into development land sites, of which the bulk was bound for the Chinese cities. Hospitality and retail investments made up slightly more than 2% of foreign investments each. The bulk of foreign investments were largely from within the region. Similar to core markets, developers still remain the largest investor group in the emerging markets; state-linked companies account for a bigger portion of the capital, as compared to core markets. Statelinked companies ploughed in US$26.5 billion into emerging markets real estate, an increase of 13.3% from the same period in 2012, which formed 23% of the capital invested. Institutional funds remained sidelined by a lack of investment grade assets. While an outright rebound in sentiment is not likely, with higher volatility due to tapering risks and lingering trade and fiscal deficits, the long-term growth story has not gone out of fashion with investors. Capital raisings for Asia-focused funds have increased from 2012 and the region continues to dominate in the emerging market space. On the whole, real estate investments in the regions emerging markets are still evolving, with transparency and market access aswell as political risks continually being assessed against the regions long-term economic potential as well as a deep structural shortage of real estate. The challenge and the solution, to a certain extent, lies in structuring investments, while positioned for the longer term, mitigates medium-term uncertainty. INVESTMENT VOLUME 120US$bn100 80 60 40 20 0CoreEmergingSource: Real Capital Analytics, Cushman &amp;Wakefield ResearchSTATS ON THE GO (FIGURES IN USD MILLION) SECTORH1 2012HI 2013Y-O-Y CHANGE94,440.65151,426.3560.3%3,678.551,883.24-48.8%249.79395.4658.3%Retail4,497.682,400.89-46.6%Residential1,198.54189.43-84.2%Hospitality967.53467.75-51.7%Development Site Office IndustrialSource: Real Capital Analytics, Cushman &amp; Wakefield ResearchINVESTMENT VOLUME (BY COUNTRY AS OF H1 2013) India 14% Vietnam 12% China 62%Malaysia 7% Thailand 4%Macau 1% Indonesia 0.3%Philippines 0.3%Source: Real Capital Analytics, Cushman &amp; Wakefield Research NB: excludes land2 3. EMERGING MARKETS IN ASIA PACIFICNOVEMBER 2013EMERGING MARKETS IN ASIA PACIFIC A Cushman &amp; Wakefield Research PublicationCHINAThirdly, although it is less sophisticated and sustainable for a citys development, land transfer still remains as the major channel of income for most local governments.INVESTMENT CLIMATE/ECONOMIC OVERVIEW Chinas real estate investment landscape has been impacted by the governments clampdown on credit and cooling measures implemented in the residential sector. In order to curb soaring property prices, Chinas securities watchdog stopped reviewing any fundraising proposals from Chinese developers. The new administration has signaled it is ready to tolerate a slower pace of growth to remain on a long-term path of sustainable expansion. In June, attempts to rein in the shadow banking system sparked a mini credit crunch. Still, land transactions have rebounded this year in tandem with the rise in property prices, as many went overseas to source for funding sources.In recent years, to accelerate the urbanization process, many local governments start large-scale constructions simultaneously through debt financing. According to the auditing of local governments of provincial cities last year, nine of them bore a debt ratio which was higher than 100%. Approaching the due date of debts, land transfer become the most effective way of reimbursement of debt. Therefore, land transactions are becoming even more active this year STATS ON THE GO (FIGURES IN USD MILLION) SECTORH1 2012HI 2013Y-O-Y CHANGE (%)92,324.43148,381.0860.72633.56944.76-64.140.14222.104.54,284.891,918.76-55.2Residential811.18105.29-87.0Hospitality459.45109.47-76.2Development SiteTRANSACTIONS OVERVIEW In the first half year of 2013, in addition to the durative upswing of the first-tier cities land market, the second and third-tier cities have also witnessed a higher growth rate in land transaction, in terms of covered area and transfer fee. For example, in June, four well-located parcels in Wuhan were sold at a bidding price of RMB2.5 billion, among which one parcel was won by Yangtze River Land at RMB512 million a new historic high in the city. The fast growth of land transactions in the second and third-tier cities is promoted by three major stimuli. First of all, the implementation of the sustainable urbanization policy has encouraged the development of the second and third-tier cities and the expectation of a rigid demand in real estate market. In the face of stiff competition and limited land supply in the first-tier cities, more investments of developers have been attracted to markets in the second and third-tier cities. Secondly, with the influence of the policy of New State 5 being absorbed by the market gradually and the gradual recovery of the global and domestic economies, a favorable expectation is generated for the real estate market and real estate investment still remains as an effective means for the maintenance or increase of value. With cheaper price and more effective supply, more individual and institutional investors have been attracted to the second and thirdtier cities, promoting the development of local real estate market and the increase of land transactions.Office Industrial RetailSource: Real Capital Analytics, Cushman &amp; Wakefield ResearchINVESTMENT VOLUME (TOP CITIES AS OF H1 2013) US$m 10,625 Land8,500Others6,375 4,250 2,125 0Source: Real Capital Analytics, Cushman &amp; Wakefield ResearchSELECTED MAJOR TRANSACTIONS (YTD) PROPERTY NAMEPROPERTY TYPEPROVINCE/CITYPURCHASERSELLERCONSIDERATION / PURCHASE PRICE RMB$ MILLION US$ MILLIONUNIT PRICE US$/SF (NLA)Huangpu AvenueDevt siteGuangzhouGreenland GroupGovt6,400.01,028.11,640.7Section G Gailanxi GroupDevt siteChongqingChina VankeGovt5,372.2875.6288.1Yunpu Industrial ParkDevt siteGuangzhouKaisaGovt4,556.6742.7361.7Govt3,990.0640.92,545.3Huangpu AvenueDevt siteGuangdongChangjiang Enterprise GroupShenzhen Century Place (27 Flrs)OfficeShenzhenBank of CommunicationsHutchison Whampoa4,000.0642.81,012.2Tianjin City TowerOfficeTianjinChina Pacific InsuranceCity Developments585.094.8248.3Suzhou CS INCITYRetailSuzhouCarlyle GroupSCP Group2,312.9183.8256.2Source: Real Capital Analytics, Cushman &amp; Wakefield Research3 4. EMERGING MARKETS IN ASIA PACIFICNOVEMBER 2013EMERGING MARKETS IN ASIA PACIFIC A Cushman &amp; Wakefield Research PublicationINDIACORPORATE TRANSACTIONSINVESTMENT CLIMATE/ECONOMIC OVERVIEW Though the first five months of the year saw net foreign institutional investor inflows, there has been a large exodus of capital from stock markets since June due to the likelihood of tapering by the US Fed, which led to global markets being in turmoil. A high trade deficit on account of petroleum and gold imports caused the current account deficit to touch a record high of 4.5% of GDP at US$87.8 billion in 2012-13 according to Reserve Bank of India. This led the government to reduce non-essential imports by imposing restrictions as well as raising duties. The deficit was further compounded from May to June as the Rupee depreciated by approximately 10% against the US Dollar since the beginning of the year. Meanwhile, in order to revive investor interest in Special Economic Zones (SEZ), minimum land requirements were reduced by half, while they were done away with for IT-ITeS SEZ during the first half year. The government also permitted the transfer of ownership of SEZ units through sale. Other regulatory reforms saw a relaxation in the norms for availing External Commercial Borrowings by housing finance companies. Additionally, FDI norms were enhanced in a number of sectors such as insurance, aviation, defense production, etc.TRANSACTIONS OVERVIEWIn contrast to private equity transactions, corporate transactions in real estate increased by 8% over the same quarter last year, to hit US$614 million in the first half of 2013. Both the number and quantum of transactions increased over the last quarter. NCR saw the highest amount of transactions worth US$253 million due to a single transaction in the peripheral location.OUTLOOK Investments in the real estate sector are expected to be stable in the next six months, as many investors remain cautious due to the rupees weakness. However, they are still committed to investing in the Indian markets as developers continue to face liquidity issues and are in dire need of funding. In addition, incomegenerating assets are expected to remain popular with funds. Structured deals involving debt financing is also being embraced by investors to take indirect stakes in projects, which mitigates shortterm risk and allows long-term exposure to one of the worlds emerging giants. STATS ON THE GO (FIGURES IN USD MILLION) SECTORH1 2012HI 2013Y-O-Y CHANGEDevelopment Land945.5612.7-35.28Office421.4193.4-54.1Hospitality78.2-NAResidential306.9152.2-50.420.2-NAOthersPRIVATE EQUITY INVESTMENTS While private equity (PE) investments in real estate, which reached US$276 million in the first half of 2013, fell 46% as compared to first half of 2012, PE funds continue to show keen interest in the market with a number of deals in discussion. This decline in the quantum of PE investments was essentially due to the lower number of deals (13 in the first half of 2013), as the average ticket size of deals remained same. The total value of investments in the residential segment reached US$156 million in the first half of 2013, a drop of 48% over last year. The total value of investments in the office segment was also lower at US$118.1 million. However, investments in ready office space are strong, reflected by the continuous growth of core investors with over US$1.3 billion invested in ready office spaces during the last three years. In 2013, the highest value of PE investments was in Pune at US$131.6 million, followed by Mumbai at US$67.5 million, NCR at US$38.8 million and Bengaluru at US$16.9 million.Source: Real Capital Analytics, Cushman &amp; Wakefield ResearchINVESTMENT VOLUME (TOP CITIES AS OF H1 2013) US$m 300 250 200 150 100 50 0 NCRPuneMumbaiPEChennaiHyderabad BengaluruOthersCorporate TransactionsSource: Real Capital Analytics, Cushman &amp; Wakefield Research Note: USD 1 = INR 59.27SELECT MAJOR TRANSACTIONS (H1 2013) PROPERTY NAMEPROPERTY TYPECITYPURCHASERSELLERCONSIDERATION / PURCHASE PRICE INR MILLION US$ MILLIONDLF HyderabadDevt SiteHyderabadSuvarnabhoomi DevelopersDLF6,500109.6NAChennai ProjectDevt SiteChennaiCeebrosViceroy4,80080.9NAEon Free ZoneOfficePuneBlackstonePanchshil Realty/Ireo Mgmt Ltd.4,50075.9NAPuneIDFC AlternativesParanjape Schemes2,50042.1NABlue RidgeOfficeUNIT PRICE US$/SF (NLA)Source: RCA, Cushman &amp; Wakefield Research4 5. EMERGING MARKETS IN ASIA PACIFICNOVEMBER 2013EMERGING MARKETS IN ASIA PACIFIC A Cushman &amp; Wakefield Research PublicationVIETNAMincreasing at a local level and will be the focus of investment activity in the short to medium term.INVESTMENT CLIMATE/ECONOMIC OVERVIEWHowever, distressed assets have not been in abundance despite the ongoing Non-Performing Loans of local banks. Lack of liquidity in the financial markets will mean there will be more forced sales in 2014.As of the end of the first half of 2013, there have not been clear signals of market recovery although a period of stabilization has set in. Growth in second quarter GDP remained at 4.9%, similar to that in the first quarter and is expected to pick up speed in the later part of the year, while inflation is expected to slow to 6.8% this year from 9.3% in 2012. Despite recent volatility in emerging market currencies, the Dong has remained relatively stable. Although the interest rate is on a downward trend, currently at 12-13%, bank loans in real estate developments are still limited.MARKET OVERVIEW Vietnam has witnessed the most active first six months of a year in the property investment market since the Global Financial Crisis, signaling a rebounding foreign investment appetite into Vietnam and an increasingly more sophisticated market.The uncertain legal infrastructure continues to contribute to a lack of transparency in the market, as do the opaqueness of domestic firm...</p>

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