...by Colliers International show that property market is driven by the strong demand for office space and residential units.
INVESTORS are still optimistic of the property prospects in the Philippines pushed by strong demand for office spaces as well as residential units, findings of the Global Investor Sentiment Survey released by Colliers International.
"In the Philippines, the general sentiment among property investors remains to be optimistic," said Paul Vincent Chua, associate director and head of Advisory and Research Services, Philippines.
"The industry is driven by the continued growth of OFW remittances, which supports private and household expenditures, the growth coming from the offshoring and outsourcing industry, and the current regime of low interest rates."
In Metro Manila, about a million square meters of new office space is intended to complete from this year to end-2013. While in terms of high-rise condominiums, pre-selling projects increase to 90 projects as of the third quarter this year which translates to more than 25,000 additional units.
"Investments on new office developments heighten with the BPAP (Business Process Association of the Philippines) forecast of over a million BPO (business process outsourcing) employees by 2016, makes property investors keen on developing with this prospect of growth," added Chua. "Furthermore, the number of residential units across major CBD’s is expected to reach more than 60,000 units in 2013 at an average growth of 15 percent annually. These two segments are driving the growth in the industry."
The Global Investor Sentiment Survey is an annual survey which takes the pulse of property investors worldwide, measuring their risk appetite, optimism, key concerns and overall market outlook. This year’s survey was conducted in the first two weeks of August 2011 using a series of targeted questions.
In Asia, the majority of investors surveyed remain optimistic in property investment. Sixty-five percent of the overall respondents indicate that they will very likely expand their property portfolios in the next 6 months.
"Office assets in Beijing and Shanghai are the Asian investors’ top preferences," said Piers Brunner, chief executive officer of Colliers International Asia. "This is followed by residential or office property in India, while industrial property in Singapore and China came in third. The findings also revealed that most investors place their bets in their own region."
Despite a willingness to buy, investors in Asia are not compelled to move out of the risk curve in order to achieve superior returns.
According to the survey findings, 35 percent of Asian investors mention that uncertainties surrounding both global and regional economic conditions is a major deterrent in their purchase decision, while 31 percent see a lack of supply of "for sale" property at their target IRR as the main obstacle.
"When asked on their target internal rate of return (IRR) for investments, a vast majority of the Asian respondents (over 75 percent), indicated that they typically aim for 15 percent IRR or higher. This is much higher than the average 40 percent investors globally who concurred to the same IRR target," added Brunner.
"A high IRR target is an indication that Asian investors are currently riding high on their risk adversity by only wanting to invest on properties which are able to generate returns strong enough to offset any possible negativity. This correlates to the survey findings which also revealed Asia to be currently the lowest in terms of risk appetite."
Reduced risk appetite varies across the region, however, according to the survey findings, 69 percent of Asian investors expressed that they felt a tightening of credit as compared to 6 months ago.
"The credit scene in Asia has gone through tremendous changes. Investors face more challenges when it comes to credit accessibility with rising cost of debt and a shrinking loan-to-value (LTV) ratio," Brunner said.
The survey disclosed that 77 percent of Asian investors said cost of debt has increased, while 54 percent pointed out that the maximum LTV ratio decreased.
Emerging trends on obsolete properties and sub-urban office spaces
The survey also revealed two emerging trends in Asia: reducing interests in owning older and more obsolete commercial property and greater anticipation in demand for sub-urban office spaces.
On the former, 65 percent of Asian investors surveyed said owning older more obsolete commercial real estate is a bigger concern today than 10 years ago. These older commercial assets are challenged by competitive new developments equipped with modern functional features.
"The needs of commercial space users have changed, thus rendering older developments functionally obsolete," said Simon Lo, executive director of Research & Advisory, Asia. "Location is no longer the determining factor if the assets’ features are not up to par. This finding is also consistent across the globe."
The latter trend on sub-urban office spaces was clearly indicated by the 77 percent of Asian respondents who anticipate a surge in demand for sub-urban office property over the next 10 years. This will particularly be the case when some of the older buildings situated in urban downtown locations become obsolete.
Looking ahead, Asian investors are confident in the further growth of rents and prices. 56 percent of Asian investors believe real estate rents will exceed the inflation rate over the course of 3 to 5 years.
"Despite key concerns in Asia such as global economic growth uncertainty, geo-political upheaval, the threat attributed to sovereign debt default and changes in local government, Asian investors believe that real estate will continue to be a good hedge against inflation," added Lo. "This is also further boosted by the recent surge in commodity prices - price of construction materials such as steel and cement have increased – which pushed up real estate prices."
In the Middle East and Africa, political risk is a key factor. In Asia, economic uncertainty is seen as the greatest risk. In Australia, the key concern is equity.
Sixty-four percent of Canadian investors and 60 percent of US investors said they are more aggressive than six months ago, a stronger shift in risk tolerance than any other region.
Most investors are interested in buying within their own region. The investors most interested in purchasing outside their own region were from Canada and Asia..
Investors in Asia, Australia/New Zealand and Latin America see increased demand for suburban office space.
Latin American investors were most pessimistic, believing they are at the peak of the market. However, they also noted that there is insufficient supply of properties for sale, suggesting that investors are still interested in buying.
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