Impact of low interest rates on Asia-Pacific commercial property prices likely to be limited, says UBS

By Ryan Swift / | April 22, 2019 6:52 PM SGT
The pause in US Federal Reserve interest rate increases is unlikely to boost commercial property prices in Asia-Pacific, according to a new report from UBS.
Citing historically low rental yields, driven in part by high pricing, the report noted that in Asia-Pacific cities outside Australia, the "marginal benefit from an extended period of low interest rates is very limited".
"Yields across most APAC markets are at their lowest in the last 10 years. Obviously, that does not mean prime yields cannot tighten further, but it does imply that we are almost reaching the floors of absolute yield levels," said Shaowei Toh, author of the report.
He suggested that investors in APAC commercial property take a more defensive approach on their investments, focusing more on enhancing rental income rather than looking for capital gains on new purchases.
Toh also said that pricing of commercial property in APAC had "defied logic", with rising prices even in the face of rising interest rates in 2017 and 2018, due to the enormous pool of investment capital chasing opportunities.
Hong Kong commercial property has been boosted by investment capital from mainland China, but major cities in the region, including Singapore, Shanghai and Seoul, had all been boosted by global capital looking for investment opportunities.
The report noted that as much as US$2 trillion in global private capital was allocated to commercial property investment last year, and 20 per cent of that was focused on Asia-Pacific. Toh said that this was a factor in propping up commercial property prices.
David Ji, head of research with Knight Frank, said that Hong Kong was a target city for commercial property investors, with a pool of capital from foreign funds chasing a relatively limited...