Supported by international investors continuing to diversify their real estate portfolios, Asia Pacific has recorded a steady flow of international capital, with investment turnover increasing by 9% year on year to US$13 billion in the first half of 2015 according to real estate advisory company CBRE’s latest Asia Pacific Investment Guide.
Richard Kirke, Managing Director, CBRE Capital Markets Asia Pacific, said, “Asia Pacific’s real estate is continuing to demonstrate strong, sustained fundamentals. Relative to the volatility being witnessed in global equity markets, APAC real estate provides investors with superior risk-adjusted returns.”
Real estate-related levies are playing a larger role in selected markets with the aim of curbing speculative investor activity. A number of markets have already imposed preventive measures: In 2013, Singapore introduced a more rigorous debt servicing ratio while Hong Kong doubled the stamp duty on foreign property investments. Other markets are also planning to introduce new tax measures. Taiwan has announced a new Capital Gains Tax, effective January 1, 2016. The current Luxury Tax will be abolished and replaced with the Capital Gains Tax, while China’s Value Added Tax (VAT) will be widened to encompass a broader range of real estate-related services.
Ada Choi, Senior Director, CBRE Research Asia Pacific, commented: “In recent years, national governments have increased taxation and tightened lending on property transactions as part of wider cooling measures in domestic markets. Despite the higher financial burden on real estate investment, the investment demand in Asia Pacific remains high. These policies are therefore expected to largely remain in place.
“We’re also seeing more investors showing a preference for core assets—which require lower leverage ratios—and being backed by international and regional institutional capital. As a result, they are less affected by the limitations on leveraging and the higher transaction costs which are aimed at dampening speculation,” Ms Choi added.
Conversely, a number of emerging economies, particularly in the Southeast Asian region, have relaxed restrictions on foreign direct investments in a bid to attract overseas capital to boost domestic growth. Deregulation measures include permitting full foreign ownership of properties in markets like Vietnam and full ownership of luxury residential condominiums in Indonesia, whereas India and China are allowing for more flexible investment policies such as lowering minimum capital requirements and the easing of exit norms.
“The Thai market continues to be dominated by local investors because of the restrictions on foreign ownership, specifically the prohibition on foreign entities owning land. At a developer level, foreign investment is restricted to bona fide joint ventures such as these agreed between Mitsui Fudosan and Ananda Development Public Co., Ltd. along with Mitsubishi Estate and AP (Thailand) Public Co., Ltd. to develop condominiums,” said James Pitchon, Executive Director – Head of Research, CBRE Thailand.
Individual foreign investors can buy up to 49% in area terms of a condominium development, but the requirement that all funds must come in from overseas as foreign currency (effectively preventing foreign investors from borrowing locally) remains in place.
“In addition to the ongoing urbanization and rapidly expanding middle class in many emerging economies, the policy shift of some governments to more open foreign investment policies sends a clear and positive signal to international investors. Given these additional incentives, coupled with many global funds still being relatively underweight in APAC, it is not surprising that capital seeking real estate is at record levels,” said Mr Kirke.
With more forthcoming relaxation measures expected, it is anticipated that there will be a notable reduction of barriers to market entry for foreign direct investments in the coming years. Nevertheless, investors should be mindful of domestic restrictions on capital repatriation and currency volatility and plan accordingly.