Where to invest amid Brexit jitters?

By Feily Sofian / The Edge Property | July 1, 2016 3:24 PM SGT
Singapore may be a safe haven and has attracted several big-ticket investment deals recently, including the sale of Asia Square Tower 1 and Straits Trading Building. So, the city-state has been cited as a big contender for capital flow that is seeking shelter from market turmoil. However, yield compressions and multiple property curbs are blunting Singapore’s competitive edge against some gateway cities.
Henry Chin, CBRE’s head of research for Asia Pacific, spoke with The Edge Property on what Brexit could mean for the Asia-Pacific real estate market. Chin expects the direct impact to be limited. Still, investors are very concerned over the global economic recovery. “Clearly, Brexit does not help,” Chin says.
The European Union is also a major trading partner for many Asian countries, especially China. With uncertainties elevated to a new level, which markets would offer a defensive play for investors?
Chin names Tokyo, Sydney and China’s tier-1 cities as his top picks in Asia Pacific based on market fundamentals. He expects Japan’s real estate market to pick up further in 2016 across property types. “Hotel is a hot asset because of the tourism boom and the 2020 Olympics. The influx of tourists has also driven retailers to increase their footprints. Domestic corporations are expanding. In the residential segment, the cost of borrowing is virtually nothing and buyers can leverage up to 90%. Hence, it is an attractive avenue to preserve wealth,” Chin explains.
Japan’s property market could get a booster if the Bank of Japan eases its monetary policy further to combat deflation and encourage consumer spending. Economists have varying views on the types and timing of the easing. In its flash notes on Brexit, UOB expects the BoJ to increase the monetary base to an annual pace of 90 trillion yen, up from 80 trillion yen currently, cut the policy rate to more negative by end-2016 and lower its overnight call rate to 0-0.05% from current 0-0.1%.
Within Asia Pacific, Chin is positive on Tokyo, Sydney and China’s tier-1 cities due to their market fundamentals
Photo: Samuel Isaac Chua / The Edge Singapore
There are also keen interests in Australian properties, particularly Sydney, among domestic and overseas investors, says Chin. “The office sector is growing in strength underpinned by financial and professional services. Landlords are already lowering incentives,” he notes.
In the residential sector, the state of New South Wales recently introduced a 4% stamp duty surcharge on foreign purchasers amid soaring demand from overseas buyers and concern of a property bubble. Notwithstanding this, Chin expects the residential property prices in Sydney to hold firm. “Over the last 10 years, Sydney underwent an underdevelopment phase. As demand picked up, supply played catch-up,” says Chin.
Chin’s top picks also include China’s tier-1 cities, simply because the country is an economic powerhouse. University graduates aspire to work in tier-1 cities. Buyers will rush in once the cooling measures are lifted, says Chin.
In the emerging markets, Vietnam’s real estate has seen a spike in foreign interest, bolstered by the relaxation of its foreign ownership policy and the optimism surrounding the Trans-Pacific Partnership. Desmond Sim, CBRE’s head of research for Singapore and South East Asia, notes that the strong political will power in Vietnam has also boosted investment sentiments. However, Sim cautions that the outcome of the US presidential election scheduled for November could affect the TPP.
On the back of renewed uncertainties following the Brexit vote, CBRE expects core assets in mature markets to dominate buying activities in the medium term. While Tokyo and Sydney are the overall favourites in the region, Singapore remains an attractive destination for sovereign wealth funds seeking safe assets with stable income and minimal risks.
“Each stage of the property cycle appeals to different investors," notes Sim. "These funds usually have an existing portfolio of properties in London and Tokyo, which are the traditional investment destinations. Singapore presents another alternative among mature markets. On the other hand, the amount of investible assets in Singapore remains limited because we are a small market," adds Sim.