Everyone loves a good story. in The Asian Real Estate Industry, there are many themes and trends that testify to the attractiveness and sustainability of the residential and commercial sectors in the region. Whether it’s the huge potential for an institutionalized rental housing market in China or the record level of leasing activity in India’s retail property market last year, Asian real estate has many advantages.
Yet it is by no means immune to the changes brought about by the pandemic the way people work, live and shop, not to mention the effects of dramatically rising inflation and interest rates. Last year, commercial real estate investment deal volumes in the Asia-Pacific region fell to their lowest level since 2012. The office sector suffered the most, with volumes down 45% year-on-year, according to MSCI data.
IN luxury residential sectorgrowth in capital values in Asia’s major cities slowed sharply in the second half of last year, with some cities such as Hong Kong experiencing an outright decline, according to Savills. Meanwhile, prime rental values fell in Singapore and Tokyo in the final quarter of 2023, according to data from Knight Frank.
However, underappreciated, often overlooked trends are more telling. One of the most important is the remarkable power of The Seoul office market. At a time when the office sector is reeling from the shift to hybrid work, especially in the US, the market in Seoul is going from strength to strength.
Even in Asia where you work from home is less common, Seoul is the standout performer. According to CBRE, the South Korean capital has the highest office return ratio in the world. About 50 percent of respondents to a survey of office occupants said 70 to 100 percent of their staff work in the office five days a week.
Office buildings in Seoul on March 29. The South Korean capital has the highest office return ratio in the world. Photo: AFP
The basics of The Seoul office market are the envy of their peers. The vacancy rate is just 1.5 percent, supported by tight supply and double-digit rent growth for Grade A buildings over the past two years. Local investors – who represent the majority of the institutional investor base in South Korea – prefer office over other sectors, which is an extremely rare preference.
Strong market performance is a boon for landlords selling high quality buildings. On April 1, Blackstone announced that it had sold Arc Place, a major renovation of a best-in-class building in the Gangnam business district in Seoul, where the vacancy rate is slightly above zero. The sale price was 27% higher in US dollars than the acquisition price, according to Asian property news provider Mingtiandi.
Brad Gladu, head of international equity for Korea at JLL, which advised Blackstone, said the deal was “a major[ed] the uniqueness of the Seoul office market as well as the cultural nuances that define different office markets”.
Another overlooked trend is the overtaking in many Asian markets of luxury housing, which is more affordable. Pressure on living costs and taxes on foreign buyers – for example, additional stamp duty for non-residents buying homes in Singapore doubled last year to an astonishing 60 percent – benefit cities with lower capital and rental values, as well as lower taxes on the purchase, holding and sale of homes.
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The Singapore government is doubling the residential property tax for foreigners to 60 percent
The Singapore government is doubling the residential property tax for foreigners to 60 percent
The most striking example is Tokyo. According to Knight Frank, US$1 million buys 64 square meters (689 square feet) of prime residential property in the Japanese capital, compared with 32 square meters in Singapore and 42-43 in Shanghai and Sydney. However, for expats who are more flexible about where they are based, or for those looking for buying a second homethere are other options among the best cities in Asia.
Kuala Lumpur, Bangkok and Mumbai – which have the lowest prime capital values among Asia’s leading cities – are attracting increasing interest from foreign buyers. In fact, some of the most affordable cities turned out to be the strongest performers.
In the last quarter of 2023, Manila saw the fastest year-on-year growth in luxury home prices among 45 global cities tracked by Knight Frank, supported by a “surge in demand from expats”. Victoria Garrett, director of global housing at Savills, said “a lot more expats [in Asia] are focused on relative affordability and quality of life’.
A third trend that doesn’t get enough attention is the surge in Japanese real estate investment overseas. While Japan itself is a a magnet for global investorsin part because of its appeal as a stable and mature market, the effects of Japan’s ultra-loose monetary policy forced domestic investors to seek higher-yielding opportunities overseas.
Why Asian buyers’ love for Australia’s property market continues
Nowhere is this more evident than in Australia. According to MSCI, Japanese buyers poured more capital into Australia last year than in the past 20 years combined. Their main focus, moreover, was rental housing; the country is born “build to rent” sector. has considerable appeal.
Australia meets the right requirements for Japanese buyers. Besides being a transparent and liquid market, it survives a wave fueled by immigration in its population, in stark contrast to that of Japan acute demographic crisis. Japanese investors also benefited from weaker competition from their American and European rivals.
Michael Beck, co-head of the Asia property practice at Herbert Smith Freehills in Brisbane, said Japanese investors in Australia were having their “time in the sun” and that “the nation’s population growth [was] a very important factor”.
Seoul’s exceptionally strong office market, the relative value of prime residential properties and the heavy push by Japanese investors into Australian rental housing are not the only trends in Asian real estate that are being underestimated, but they deserve more attention.
