Asia Pacific Property DigestThird Quarter 2011Asia PacificLeading Global Rental Growth
Asia Pacific Property Digest • Third Quarter 2011 Dear Reader,At the end of Q3, most real estate markets in Asia Pacific remain in the upturn phase of the cycle. Solid activity levels continueto drive increases in rents and capital values in most locations although growth momentum is starting to slow. Over the next 12months, the regional economy is expected to grow more than twice as fast as the rest of the world and this growth should continueto underpin property market activity.You can also view this report as an on-line version at www.joneslanglasalle.com/thehub where you will also find our other researchreports, property market indexes, clocks and research blogs.Happy reading!Best regards,Dr Jane MurrayHead of Research – Asia Pacific Feature Articles Retail Asia Pacific Economy and Property Market 4 Beijing 41 Asia Pacific CEO Commentary 8 Shanghai 42 Taiwan – Opening Doors to Mainland China 10 Guangzhou 43 Singapore – New Residential Stock 12 Chengdu 44 India – Public Private Partnership 14 Hong Kong 45 Australia – Online Retail Boom 16 Bangkok 46 Office Kuala Lumpur 47 Singapore 48 Tokyo 18 Jakarta 49 Osaka 19 Delhi 50 Seoul 20 Mumbai 51 Beijing 21 Bangalore 52 Shanghai 22 Chennai 53 Guangzhou 23 Australia Sub-Regional 54 Hong Kong 24 Auckland 55 Taipei 25 Bangkok 26 Residential Ho Chi Minh City 27 Beijing 56 Manila 28 Shanghai 57 Kuala Lumpur 29 Hong Kong 58 Singapore 30 Macau 59 Jakarta 31 Bangkok 60 Kuala Lumpur 61 Delhi 32 Manila 62 Mumbai 33 Singapore 63 Bangalore 34 Chennai 35 Industrial Sydney 36 Tokyo 64 Melbourne 37 Beijing 65 Brisbane 38 Shanghai 66 Adelaide 39 Guangzhou 67 Hong Kong 68 Auckland 40 Singapore 69 Sydney 70 Melbourne 71 Brisbane 72Cover picture: China World Tower, Beijing
Asia Pacific Property Digest • Third Quarter 2011 Asia Pacific EconomyEconomy Outperformance Expected to Continue Dr Jane Murray Head of Research – Asia Pacific The Asia Pacific economy continues to outperform the rest of the Indonesia: Real GDP grew by 6.5% y-o-y in 3Q11, the same as world and recent economic indicators show that activity levels the previous quarter, on the back of strong exports and investment generally remain solid. However there is mounting evidence, spending. GI is forecasting slightly lower growth of 6.3% for the full including the first GDP results for Q3, that growth momentum is year 2011 and 5.7% for 2012. Indonesia is one of the least vulnerable starting to slow. This is due to a range of factors including the economies in Asia to slowing export demand and its economy should ongoing sovereign debt crisis in Europe, sluggish activity in the US continue to benefit from strong domestic demand. and previous tightening measures by countries in our region. This Japan: Real GDP contracted by 1.1% y-o-y in 2Q11, similar to situation has started to impact regional export growth as well as the previous quarter, following the disruption to production and domestic activity including industrial production. exports caused by the March earthquake and tsunami. The latest data indicate some ongoing weaknesses, with industrial production Growth still solid in most countries declining by 4.0% y-o-y in September while retail sales fell for China: Real GDP grew by 9.1% y-o-y in 3Q11, slowing from the the second straight month. However GI predicts that, following a 9.5% recorded in the previous quarter. Retail sales grew by a more contraction of 0.6% this year, the Japanese economy will rebound by moderate 11.3% y-o-y in real terms in the first nine months. The latest 2.7% in 2012 due largely to the reconstruction efforts. data indicates a further slowing in growth momentum although we do not expect a hard landing as a result of the government’s various Australia: The economy returned to positive growth in 2Q11, after policy measures to prevent overheating of the economy. IHS Global contraction in the previous quarter induced by natural disasters Insight (GI) expects China’s economy to grow by 8.1% in 2012. This in Queensland which disrupted mineral exports. However, retail represents a moderate slowdown from projected growth of 9.3% in spending has been growing at well below trend levels and the 2011 due to both slower external and domestic demand. unemployment rate has edged up in the past six months. For 2011, full-year growth of 1.7% is expected. Growth is forecast to strengthen India: The economy expanded by 7.7% y-o-y in 2Q11, similar to to 3.2% in 2012, supported by mineral and agricultural exports and the 7.8% growth in 1Q11, as faster growth in manufacturing output related investment spending. helped offset a slowdown in the agricultural sector. GI expects India’s real GDP to grow by 7.7% in 2012, similar to a projected 7.5% in Singapore: Real GDP growth accelerated to 5.9% y-o-y in 3Q11 2011, as generally vibrant consumer spending should help to offset (+1.0% y-o-y in 2Q11), based on advance estimates, with growth slowing exports and investment spending. picking up in the volatile manufacturing sector. GI expects real GDP Figure 1: Real GDP Growth Figure 2: Consumer Price Inflation 10 20 8 18 10 6 8 y-o-y (%) y-o-y (%) 4 6 2 4 2 0 0 –2 –2 China India Indonesia Vietnam Hong Kong Philippines Taiwan Singapore Malaysia South Korea Thailand Australia New Zealand Japan Vietnam India China Indonesia Hong Kong Singapore Philippines New Zealand South Korea Thailand Australia Malaysia Taiwan Japan 2011F 2012F 2011F 2012F Source: IHS Global Insight, October 2011 Source: IHS Global Insight, October 2011
Asia Pacific Property Digest • Third Quarter 2011 EconomyKey Performance Indicators GDP (%) Short-Term Interest CPI (%) Unemployment Real Private Industrial Rate (%) Rate (%) Consumption (%) Production 2011F 2012F 2011F 2012F 2011F 2012F 2011F 2012F 2011F 2012F 2011F 2012F China 9.3 8.1 6.4 6.4 5.6 4.1 4.1 4.1 8.2 8.2 13.5 11.4 Hong Kong 5.2 4.5 0.2 0.2 5.0 3.8 3.4 3.1 6.8 4.8 NA NA Taiwan 4.6 4.4 0.7 1.0 1.5 1.5 4.4 4.1 3.5 3.0 7.3 6.9 Japan –0.6 2.7 0.2 0.2 0.2 –0.6 4.7 4.6 –0.8 1.8 –1.4 12.9 South Korea 3.5 1.6 3.4 3.8 4.0 2.0 3.6 3.8 2.8 3.5 7.0 2.0 Philippines 4.6 5.0 1.4 2.2 4.7 4.2 7.2 7.2 5.3 5.3 5.6 5.2 Singapore 4.5 4.4 0.3 0.6 4.9 2.9 2.5 2.7 4.8 3.0 5.9 5.0 Malaysia 4.0 3.7 2.9 2.9 3.2 2.9 3.1 3.2 6.0 5.4 0.6 3.3 Thailand 3.1 3.6 2.8 3.4 3.9 4.0 0.7 0.9 3.1 3.7 –1.0 6.0 Indonesia 6.3 5.7 6.8 6.6 5.5 4.7 6.7 6.5 4.8 4.9 4.3 3.7 Vietnam 5.9 5.8 14.5 10.8 18.7 8.5 2.9 3.0 6.6 7.0 13.0 9.9 India 7.5 7.7 9.8 11.0 8.5 7.0 9.6 9.5 7.5 7.1 5.8 5.7 Australia 1.7 3.2 4.9 5.0 3.4 2.8 5.2 5.3 3.2 2.5 –2.6 2.9 New Zealand 1.6 3.0 2.7 3.3 4.3 2.1 6.3 5.6 1.9 2.5 2.8 1.9 World 3.0 3.0 3.2 3.3 4.1 3.1 8.4 8.3 2.5 2.7 4.1 4.3Source: IHS Global Insight, October 2011to grow by 4.4% in 2012, similar to this year’s pace, as domestic implementing other tightening measures since 3Q09. However, givendemand should help to offset weaker export growth. the more challenging economic environment that has emerged in recent months and the likelihood of moderating inflationary pressures,South Korea: The economy expanded by 3.4% y-o-y in 3Q11, the further policy tightening in the current cycle is now looking unlikely.same as 2Q11, as more government spending helped to offset a Indeed, some monetary loosening has already been implemented, withsoftening in consumer spending. GI expects real GDP growth to Australia and Indonesia cutting interest rates by 25 bps in early 4Q11.moderate from 3.5% this year to 1.6% in 2012, mainly due to slowerexport growth. Regional economy should continue to outperformHong Kong: In 2Q11, economic growth moderated to 5.1% y-o-y There’s no doubt that the world is facing more challenges as we(7.5% y-o-y in 1Q11), slightly above the ten year average of 4.1%. In move towards 2012. However, at this stage we believe that a globalSeptember, retail sales grew by a very strong 24.1% y-o-y, although recession will be averted and that Asia Pacific will continue todown from the 29.0% recorded the previous month. GI expects real outperform next year. The region has strong structural drivers, lowGDP growth to moderate from 5.2% in 2011 to 4.5% in 2012, mainly levels of indebtedness and policy flexibility should conditions worsen.due to slower export growth. According to GI, Asia Pacific should grow by 4.6% this year,Policy tightening has probably come to an end significantly above the rest of the world at 2.6%. In 2012, the region is expected to grow by a slightly faster 5.4% as a moderate slowdownInflationary pressures remain high in many countries. In September, in emerging economies including China should be offset by strongerChina’s CPI inflation rate moderated slightly to 6.1% y-o-y, while in growth in the advanced economies of Japan and Australia. ByIndia wholesale price inflation remained at 9.7% y-o-y. Most regional contrast, the rest of the world is projected to grow by 2.2% next year.central banks have been in the process of raising interest rates or
Asia Pacific Property Digest • Third Quarter 2011 Asia Pacific Property MarketProperty Market Leading Global Rental Growth The property markets in Asia Pacific continue to see positive growth likely to be seen in markets such as Beijing and Jakarta, underlying fundamentals, despite more economic uncertainties. At followed by Tokyo, Sydney and Shanghai. the end of Q3, most real estate markets in the region remain in the Retail sector: Retailer demand remained strong in Greater China upturn phase of the cycle. Solid activity levels continue to underpin during 3Q11 and Hong Kong was a standout performer in terms increases in rents and capital values in most locations. However of retail turnover which continued to surge largely due to Mainland growth momentum is starting to slow, particularly in those markets tourists. Retailers in India, Australia and some South East Asian that are most exposed to global economic conditions. markets were more cautious and as a result rental growth slowed across most markets in 3Q11. Rents should see further uplift in most Rents still increasing in most markets centres over the next few quarters, although generally at a more Office sector: In 3Q11, 1.5 million sqm of new Grade A space was moderate rate, due to the economic climate and/or upcoming supply completed in the Tier I markets of Asia Pacific, with around two-thirds additions. of the total being delivered to markets in China and India. Aggregate net absorption of office space held at a strong 1.4 million sqm, Residential sector: Leasing activity in most luxury and high-end the same as the previous quarter, and this year is on track to be a residential markets was largely stable in 3Q11, but improved slightly record in terms of take-up. Corporates continued to expand in China, in Beijing, Shanghai, Manila and Jakarta. Likewise luxury rents while relocations and expansions bolstered demand in some other were generally stable but increased by up to 4% q-o-q in China. centres. Corporate hiring sentiment and leasing demand weakened More subdued rental growth is expected for 2012, and Hong Kong in Hong Kong and Singapore amidst market volatility and news of and Singapore should see some softening due to slower corporate some corporates shelving relocation and expansion plans. We expect expansion. overall leasing demand to weaken moderately next year, due to Industrial sector: The regional industrial market remained healthy slower economic growth and corporate hiring in some markets, as in 3Q11 despite the slowdown in regional trade. Rents continued well as smaller supply additions. to grow in Greater China and Singapore but were broadly flat in Rents rose further in most markets in 3Q11, although growth started Australia, while Beijing and Hong Kong recorded the highest q-o-q to slow in a number of centres. Rents in Jakarta, Beijing and Perth increases. Moderate rental growth is projected for most centres over saw the largest q-o-q increases of between 10.5% and 13.6% on the the next 12 months apart from Hong Kong and Singapore which are back of falling vacancy levels. Among the major financial centres, likely to be more impacted by the slowdown in exports. net effective rents fell marginally in Hong Kong for the first time since the GFC, and moderated to 0.6% q-o-q growth in Singapore, largely Capital values edge higher due to more cautious behaviour of financial corporates. On the In 3Q11, AP commercial real estate investment volumes totalled other hand, rents in Sydney saw stronger quarterly growth of 6.6% US$21 billion, up by 13% q-o-q and 7% y-o-y. Japan regained its top underpinned by healthy take-up. In Tokyo gross rents fell further by spot in the region, with volumes rebounding strongly by over 200% 0.4% although net effective rents were stable. Rental declines were from Q2 which was severely impacted by the earthquake. Greater seen in a few other markets including Seoul, Osaka and Ho Chi China also saw strong buying activity and Hong Kong recorded its Minh City, due to weak tenant demand or new supply, but are close largest ever transaction, the sale of a shopping centre to a cross- to bottoming out. On average, Asia Pacific office rents rose by 2.5% border investor. For the full year 2011, aggregate regional investment q-o-q. This compares with 1.1% for the Americas and no growth for volumes are estimated at around US$89 billion, similar to last year, Europe. More detail can be found in our recently launched Global and slightly below the US$100 billion projected at the beginning of the Office Index. year. The loss of volumes from Japan in Q2, coupled with mounting investor uncertainty, account for the lower than expected volumes. Looking forward, we expect rents to continue to increase in most markets over the next 12 months, although Hong Kong and Most major markets saw either stable or increasing capital values Singapore may see some softening given their greater exposure to during the quarter. The largest quarterly increases were recorded in the global economy. Rents in Tokyo are forecast to correct until the Jakarta (+14.2% q-o-q) and Beijing (+11.8% q-o-q), which also saw the end of this year and a few other laggard markets are also likely to see strongest rental growth. Capital values are expected to remain stable either no growth or some residual rental declines. Rental growth of or increase in most markets over the short to medium term, with the up to 25% is expected across the region for 2012, with the strongest exception of Hong Kong and Singapore. For 2012, we are forecasting
Asia Pacific Property Digest • Third Quarter 2011 Rental Property Clocks, 3Q11 Property Market Grade A Office Prime Retail Hong Kong Guangzhou Hong Kong Singapore Singapore Shanghai Guangzhou Growth Rents Growth Rents Slowing Falling Slowing Falling Beijing Beijing Rents Decline Manila Rents Decline Manila Kuala Lumpur Rising Slowing Rising Slowing Perth Bangkok Adelaide Shanghai Melbourne, Jakarta Seoul Melbourne Sydney Sydney Osaka Bangalore^ Ho Chi Minh City, Canberra SE Queensland Tokyo Brisbane, Mumbai^ Kuala Lumpur, Tokyo Delhi Bangalore Bangkok, Delhi^ Chennai, Taipei, Auckland Auckland, Jakarta ^ CBD SBD *For Prime Shopping Malls Prime Residential Industrial Hong Kong Singapore* Hong Kong Singapore (High-Tech) Singapore (Conventional) Growth Rents Growth Rents Slowing Falling Shanghai Slowing Falling Shanghai Manila Rents Decline Rents Decline Rising Slowing Rising Slowing Beijing Beijing Sydney Kuala Lumpur Melbourne Jakarta Bangkok Auckland, Brisbane Tokyo *Business Parks (Singapore) *For High-end Residential Properties Logistics Space (Hong Kong, Shanghai, Beijing, Tokyo Bay Area)the strongest growth in China, Tokyo and Jakarta. Yields may see About the Authormoderate softening in some markets due to increased investor caution. Dr Jane Murray joined Jones Lang LaSalle in 1998 and in 2005 wasRegion’s drivers should shore up activity next year appointed as Head of ResearchThe regional property market will not be immune from any further – Asia Pacific. In this role, Jane leadsdeterioration in global conditions. However Asia Pacific’s economic a team of over 100 professionaldrivers, together with its attractive cost base, should continue to researchers in the region, whichbuoy leasing activity across the various property sectors. In turn, this forms part of a network of aroundshould see further increases in rents next year in most markets, with 300 researchers in 60 countriesa moderate decline for those that are more exposed to the global around the globe.economy. The Asia Pacific Research teamAs for investment demand, our current outlook for 2012 is for a stable produces a range of outputs to assist the clients of the Firm with theirregional market continuing to see investment volumes at around the decision making, including comprehensive market monitoring andsame level as 2011. Capital values should continue to grow in most analysis across major institutional-grade real estate markets in themarkets, but at a generally slower rate, as for rentals. At this stage we region; forecasts of key real estate indicators; consultancy projects;expect any decline in rents and prices to be temporary and near-term thought leading research papers on topical issues as well as regularweaknesses to subside when the economic and policy environment publications.becomes more favourable.
Asia Pacific Property Digest • Third Quarter 2011Alastair Hughes, CEO AP A Change in Mood as a Chill Wind from West Blows East: Five Reasons to Be Cheerful Economic storm clouds are gathering over parts of Europe and slow to India and the Philippines are part of the solution. This is resulting in growth in advanced economies is weighing on global sentiment, and demand for office space remaining at very high levels. there is no doubt this has spread to most markets in Asia Pacific Fourth, Asian companies are still growing. Corporate fundamentals during Q3. Even with this wind from the west blowing towards the remain in good shape across the region. Companies have access east, we have good reason to remain optimistic about Asia Pacific and the resilience of real estate markets in this part of the world. So what are some of the reasons that I remain cheerful as I travel around the region seeing our offices and our teams growing? First, the economies of Asia Pacific are still growing. Some quickly, like China and India, and some more slowly, like Australia and Japan, but overall there are still reasons for optimism that this will continue looking ahead to 2012. Second, western companies still see Asia as their growth market. A good example of this is the fact that two big household name US companies engaged us during Q3 in two separate projects to execute big land deals for new manufacturing facilities in China. These companies are looking to target their products at the growing middle class consumer markets in Asia. It is this type of movement of western firms looking for growth that is likely to continue whilst the growth differential in our two speed world continues. Third, western companies are looking even harder at their costs in light of uncertain future revenues and ‘business process outsourcing’
Asia Pacific Property Digest • Third Quarter 2011 Alastair Hughes, CEO APto capital and access to a growing market of consumers who havesavings, little debt and a growing propensity to spend. We areincreasingly acting for Asian companies. This gives me cause foroptimism in that as a firm we are truly embedded in the countrieswhere we operate. All real estate is by definition ‘local’. We employlocal talent and are increasingly being appointed by local firms tointeract with other local parties. Several recent cases spring to mindwhere we have been appointed to advise on deals between twolocal firms or to advise state-owned enterprises. Our local strengthsand global connections add value to both our local and internationalclients.Fifth, as well as occupier growth, Asia Pacific is home to some of theworld’s largest sources of capital and international investors remainkeen to gain exposure to the real estate investments markets in thispart of the world.We continue to assist investors buying into real estate deals inour high-growth cities. Australia and New Zealand continue to beattractive to local and overseas buyers alike, and that includesemerging market Asian buyers with high levels of equity. In NewZealand we assisted an Asian high net worth family to buy the MetroCentre office development for approximately USD 30 million, andin Australia we have been appointed to assist another Asian Familyoffice to sell one of Sydney’s most central properties, the WynyardComplex of office hotel and retail properties.Investors have continued to put money to work in the real estatemarkets looking for diversification and we have sold a number of in the third quarter through our merger with King Sturge and our 330properties recently. In Australia they include 286 Sussex Street office new colleagues from Procon in Indonesia, one of the region’s fastest-building in Sydney for AUD 32.5 million (USD 33.2 million); the Target growing economies.Centre, a retail and office property in the Melbourne CBD for AUD88.0 million (USD 89.9 million) to an offshore private investor; and Jones Lang LaSalle continues to step up to the demands of ourThe Peninsula Lifestyle Centre in Victoria to BB Retail Capital for clients all over the world and here in Asia Pacific. The wind from theAUD 44.5 million (USD 45.5 million). West may be taking the edge off Eastern exuberance, but there is still plenty of activity in the real estate markets in Asia Pacific and, atSingapore was also popular where we completed a deal on 182 least, five reasons to be cheerful.Clemenceau Avenue for SGD 74 million (USD 58.4 million), six-storey office building in the CBD and we sold the Paramount Hotel Shopping Centre for SGD 214 million (USD 168.9 million).Asian buyers have been busy in other advanced economies, notablythe London residential market where we have facilitated project salesof over USD 2 billion in the last 18 months for our London-baseddeveloper clients, connecting them up with buyers here. We are alsoconfident that some clients from Europe would like to reciprocate bybuying residential properties in Asia Pacific. We have been appointedto sell some quality projects in Sydney, Singapore, Kuala Lumpur andMacau.So there are reasons from both the occupier and investor sides of ourbusiness for us to keep growing in the region. I would like to welcome Alastair Hughesall our new colleagues and clients that have joined us in Asia Pacific CEO, Asia Pacific
10 Asia Pacific Property Digest • Third Quarter 2011 What Has Changed in Taiwan After It Opened Its Doors to Mainland China?Taiwan Howie Wang Research Associate – Research, Taiwan Cross-Strait relationships have been improving since the inauguration world has seen in Hong Kong, there is no shortage of supply when of Taiwan’s president, Ma Ying-Jeou, in 2008. A few important it comes to Mainland tourists. Indeed, the spending and capital flow changes have been made over the past four years, especially that has resulted from mass tourism from Mainland China has had in terms of economic cooperation. Moreover, it appears that the a significant impact on Hong Kong’s hotel, retail and residential real Mainland Chinese leadership has been willing to provide Taiwan with estate sectors. In Taiwan, in addition to the tour groups Mainlanders more goodwill economic incentives, e.g. the cross-Strait financial were originally required to travel in, a regulation allowing up to 500 Memorandum of understanding (MOU) and Economic Corporation individual Mainland visitors per day was implemented in June 2011. Framework Agreement (ECFA). We expect further relaxation of the Taiwan’s real estate markets are in a good position to enjoy similar restrictions on trade and investment with Mainland China, and a more benefits from Mainland visitors as Hong Kong. stable Taiwan-Strait relationship. Together this should help Taiwan’s The 2010 Annual Survey Report on Visitor Expenditure and Trends in economy grow at a healthy pace. Taiwan revealed that Mainland shoppers spend more than any other Milestones in the relationship between Taiwan and Mainland China: nationality. While the average shopping expenditure in Taiwan is USD 77 per day, Mainland visitors now splash out USD 138 per day • Direct cross-Strait flights inaugurated and Mainland groups on shopping, a 72% increase over 2008. By our estimation, the 4,000 permitted to travel to Taiwan (July 2008) Mainland visitors added USD 550,000 daily to Taiwan’s retail outlets, • A cross-Strait financial MOU signed (November 2009) boosting annual retail sales by USD 201 million. Government data • Economic Corporation Framework Agreement (ECFA) signed also indicates that department store sales in Taiwan saw an average (June 2010) increase of nearly 4% from 2008 to 2010, rising 8.3% to NTD 251,113 million (USD 8.2 billion) in 2010 alone. Although renewed weakness • Individual Mainland visitors permitted to travel to Taiwan in the US and Europe would have an impact on sales, Taiwan’s (June 2011) overall retail market continues to be underpinned by Mainland New Shoppers in Taiwan shoppers. The liberalisation of direct flights between Taiwan and China allowed Notable shopping areas in Taipei, such as the Xinyi Planned Area, the Mainland groups to visit Taiwan from mid-2008. The initial limit of Zhongxiao East Road area and Xinmending, have seen the opening 3,000 people permitted per day was then increased to 4,000 per of new flagship stores to meet the demand of Mainland visitors, with day in 2011. In 2010, the total number of visitor arrivals to Taiwan the increase in high street rents estimated conservatively at 5-10% jumped to an historical high of 5.6 million, of which Mainland visitors to NTD 10,000-30,000 per ping per month (USD100-303 per sqm accounted for the largest single group, at 29%. Despite the political per month). In the meantime, as there is no heavy tax on jewellery or issues, the common culture and language has made Taiwan one of cosmetics in Taiwan, Mainland shoppers enjoy tax-refund shopping the most favoured travel destinations for Mainland tourists. As the on the island. Figure 1: 2010 Taiwan Per Capita Visitor Spending by Category Figure 2: Taiwan Approved Indirect Mainland Cumulative Investment Amount 320 120,000 280 100,000 240 USD spending per day 200 80,000 USD Thousand 160 60,000 120 40,000 80 20,000 40 0 0 Japanese Chinese American European 1991-2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1-8 Hotel Shopping Outside Meals Local Transportation Entertainment Miscellaneous Expense Source: Taiwan Tourism Bureau, 2011 Source: Investment Commission, Ministry of Economic Affairs, August 2011
Asia Pacific Property Digest • Third Quarter 2011 11 Taiwan Regulations governing free independent travellers from Mainland China: Maximum length of stay: 15 days Daily allowance: 500 people Applicants must be legal inhabitants of Beijing, Shanghai or Xiamen; they are required to provide a guarantee from travel agency and their relatives, but do not have to pay a deposit for their tour. REQUIRED DOCUMENTATION for visa application: • Mainland applicants must be at least 20 years old and have a bank deposit of a minimum of NTD 200,000 or an annual income of NTD 500,000, or possess a gold card issued by a Mainland financial institution. • Applicants can be accompanied by their spouse and/or a direct relative. • Students aged 18 or older also qualify with a valid student ID. • Applicants are required to take out health insurance valid in Taiwan for the duration of their stay. Source: National Immigration AgencyEconomic Cooperation OutlookThe signing of the ECFA and the financial MOU with the Mainland With the improved bilateral relations between Taiwan and MainlandChina government are the most important factors driving the real China, FDI into Taiwan is expected to continue increasing, solidifyingestate market. The economic cooperation has enabled Mainland its position as one of the economic centres of the region and one offinancial institutions to establish corporate banking services in Taiwan, the key destinations for outbound investment from China. Additionally,which is one of the Mainland’s top trading partners, with authorised the influx of Mainland visitors will support the retail and hotel markets,investment totalling USD 103 billion from 1991 to August 2011. and boost Taiwan’s tourism industry.The ECFA not only eased cross-Strait political tensions, but alsoencouraged a more cooperative relationship between Mainland About the AuthorChina and Taiwan. Under the agreement, both sides agreed to Howie Wang joined the Researchlower tariffs on goods in the textile, auto parts, machinery and Department of Jones Lang LaSalle’spetrochemical sectors, among others. Mainland China reduced Taipei office in 2010.tariffs on 539 Taiwanese goods, while Taiwan reduced tariffs on 267Mainland commodities. We also expect more foreign corporations He is responsible for researchto be interested in the Taiwan market due to the lower tariffs. From publications and research projectsJune 2010 to August 2011, the number of authorised Mainland primarily focusing on commercialcorporations with a presence in Taiwan nearly tripled from 55 to 152, property. He is actively involvedwhile the number of foreign companies escalated by 167 to 3,536 in giving market presentations forand the number of foreign representative offices increased by 252 to Jones Lang LaSalle’s clients and3,520, with mounting investment reaching NTD 11 billion (USD 328 to various other organisations withmillion). We estimate that, due to cross-Strait economic cooperation, interests in the Taiwan property market. Howie holds a Master degreeMNCs and Mainland occupiers absorbed some 10,000 ping (33,000 in European Property Development and Planning from Universitysqm) of Grade A office space in Taipei over the last 12 months. College London.
12 Asia Pacific Property Digest • Third Quarter 2011 New Stock Arriving in the Singapore Residential MarketSingapore Dr Chua Yang Liang Head of Research, South-East Asia Some analysts have argued that the Singapore residential market 20% of them non-residents. By 2010, the population had jumped to will see a correction in 2014/2015 due to the large amount of stock 5.1 million, with non-residents accounting for 25%. However, total expected to complete over that period. An average of 50,000 housing housing stock (private and public) during this same period grew units (public and private) per year is expected be ready in both 2014 only from 956,275 to 1,158,885 units, equivalent to a 2.1% increase and 2015 – equivalent to about 4.0% of the current housing stock of per annum. The net effect is that the size of the average national 1.1 million units. In our opinion, the residential market will not contract household1 expanded from 4.21 people in 2000 to 4.37 people in as a result of this growth. First, the Singapore residential market 2010. The average household size since 2000 has been about 4.08 has rarely seen a correction based on stock levels alone. Second, (Figure 1). the growth in population over the past few years has outpaced that As a result of the larger households, demand for new housing has in the physical housing stock. Finally, immigration is unlikely to been pressing. Property prices in terms of the URA’s Property slow, as articulated by Prime Minister Lee in his National Day Rally Price Index (PPI) continued to show strong gains over that period, speech. Demand for housing is, therefore, likely to remain fairly especially in 2006/2007, when prices island-wide expanded 31%, and stable and support the injection of new stock over the next few years. again in 2009/2010, when they rose 18%. Convinced by the strong Undoubtedly, the current increase in global economic uncertainty is demand and rising prices, developers have continued to push out likely to dampen sentiment here, resulting in short-term fluctuations new projects with an average of 12,000 housing units per year since in demand and prices but, overall, the mid- to longer-term outlook 2006. With the new stock coming onto the market, the size of the remains stable on the back of these fundamentals. average household should decrease to 3.9 people, assuming that the population growth slows to just 5.2 million by 2015. If immigration Housing market and population growth keeps pace, albeit at a slightly slower rate, the size of the average The growth in population since 2003 has been driven largely by household will be around the long-term average of 4.08, with a immigration. In 2000, there were 4.02 million people in Singapore, population of 5.5 million, in 2015. Figure 1: Average household size rising with population growth Figure 2: Two recent corrections in PPI were externally driven 80,000 4.6 5.0 Global 190 60,000 Financial 4.4 Crisis 40,000 18% 4.0 4.2 170 20,000 –5% 2% Housing Units 4.0 Est. Household Size 3.0 Index Number (mil) 0 150 3.8 –20,000 2.0 3.6 130 –40,000 3.4 –60,000 1.0 110 Tech Stock 3.2 –80,000 Bubble 0.0 3.0 –100,000 90 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total Population Total Physical Stock Annual (ST) Balance of Housing Stock URA Islandwide PPI (RHS) Average Household Size (RHS, 5.2 mil 2015) Cumulative (LT) Balance of Housing Stock Source: Jones Lang LaSalle Source: Jones Lang LaSalle 1 For purposes of simplicity, the size of the national household is calculated by taking the overall population divided by the total housing stock, excluding worker and student dormitory housing. This ratio is different from the 3.5 people per household reported in the Census as the latter includes only Citizen and Permanent Resident households. 2 The completion of housing stock is matched against housing occupier demand each year to arrive at the short-term (annual) balance of housing stock. The long-term balance is the cumulative sum of this annual housing stock balance over time. 3 In this first case, we have assumed that the population will reach only 6.5 million by 2050, in line with the URA’s long-term population estimate used for planning purposes.
Asia Pacific Property Digest • Third Quarter 2011 13 Singapore Figure 3: Cumulative stock not likely to tip property prices 80,000.00 250 Averaging 1.8% per year 60,000.00 Forecast 200 40,000.00 20,000.00 150 Housing Units 0.00 Index –20,000.00 100 –40,000.00 –60,000.00 50 –80,000.00 –100,000.00 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0 Annual (ST) Balance of Housing Stock Cumulative (LT) Balance of Housing Stock URA Islandwide PPI (RHS) Source: Jones Lang LaSalleHistorically, the PPI is sentiment-driven housing stock may be insufficient to meet annual demand, therebyThe impact of the short- and long-term balance of housing stock on 2 supporting further increases in property prices.property prices as measured by the URA’s PPI is shown in Figure 2. Itis commonly accepted that the Singapore residential market is driven Summarylargely by sentiment. The PPI recorded major corrections in 2000/01 Based on the three fundamental issues of historical behaviour, weand 2007/08, despite a shortage of stock in both periods. The PPI have argued that large residual demand and long-term populationremained flat from 2002-04 as the short- and long-term housing stock growth targets will likely support the housing market going forward.exceeded demand. Most recently, in 2007/08, the balance of the While our view is based on the assumption that the Singaporedeficit in housing stock supported a 20.0% rebound two years after economy will remain fairly stable, should conditions worsen beyondthe initial correction of 5.0%. that of a technical recession, we could expect the PPI to decline. We are, however, confident that the PPI would recover in the mid- toResidual demand to continue supporting the market longer-term in line with the underlying fundamentals of residualThe large surplus in the annual balance of housing stock will not demand and new immigration growth. The outlook beyond 2015 willbe sufficient to drive the cumulative balance of housing stock into then depend largely on the state’s immigration policy.positive territory until 2015. Therefore, this outstanding, or residual,housing demand (as further evidenced by the larger size of the About the Authoraverage national household) is likely to continue to supply occupiers Dr. Chua Yang Liang leads the(potential homebuyers) over the next few years. The PPI is unlikely to Jones Lang LaSalle research teamssee a large correction but maintain a more modest growth, averaging in the South-East Asia region,some 1.8% per year until 20153 (Figure 3). encompassing Indonesia, Malaysia, the Philippines, Singapore, ThailandLong-term population target assumes immigration likely to and Vietnam. Trained as an urbancontinue planner, Dr. Chua brings a differentImmigration is unlikely to slow, as articulated by Prime Minister Lee perspective to the fundamentalin his National Day Rally speech. We think that the growth rate for research on the property market.residents is likely to remain at the 2010 level, while the growth of the He publishes original research onforeign population could be slightly lower. Given this, we could be regular property market updates, rental and price indices, topicalhome to 5.5 million people by 2015. If that figure materialises, new property market matters, as well as consultancy assignments.
14 Asia Pacific Property Digest • Third Quarter 2011 Public Private Partnership, a Proven Mantra for Infrastructure Development in IndiaIndia Ashutosh Limaye Head of Research and Real Estate Intelligence Service, India Since independence in 1947, the development of infrastructure has • Build/Operate/Transfer (BOT) or Build/Transfer/Operate (BTO) been the responsibility of the Indian government and one that it has • Build-Own-Operate (BOO) dutifully discharged for four decades. It has now become clear that • Build-Own-Operate-Transfer (BOOT) the government cannot go on with this mechanism, considering the natural growth of the country, its phenomenal rate of urbanisation, • Buy-Build-Operate (BBO) and the widening gap between the infrastructure required and that • Design-Build (DB) which can be provided. Thus, while opening up its economy to the • Design-Build-Maintain (DBM) world in 1991, India also opened the gates to private participation • Design-Build-Operate (DBO) in infrastructure, a domain it had previously held closely to its chest. • Developer Finance This attracted significant interest from domestic and international private sectors as both the country and the world were convinced • Lease/Develop/Operate (LDO) or Build/Develop/Operate (BDO) of the growth India is set to achieve over the next few decades. Benefits of a PPP India’s call to introduce and facilitate Public Private Partnership (PPP) proved to be the right step towards collaboration and boosting PPPs bring together the strengths of both the public and private confidence in the private sector, with the government’s active domains to achieve: participation in this joint effort set to create world-class infrastructure • Reduced life-cycle costs in India. • Better risk allocation What is PPP? • Faster implementation “Government and a private corporation combine to provide a public • Improved service quality service through the creation and use of new assets for a set time • Generating additional revenue streams period.” is the easiest definition of a PPP. A private sector consortium • Reduced burden on the government exchequer can form a special company called a “Special Purpose Vehicle” (SPV) • Meeting the changing demand pattern of people: “Bijli-Sadak- to develop, build, maintain and operate the asset for the contracted Paani” (uninterrupted power - all-weather roads - water period. The goal of any PPP is to combine the best capabilities of management) emerging as the voter’s mandate from the the public and private sectors for mutual benefit and to act in the erstwhile “Roti-Kapda-Makaan” (food - clothing - housing) best interests of the project. The result is the integration and cross- transfer of public and private sector skills, knowledge and expertise to Risk allocation forge capacity-building and the efficient use of resources, and bring With its bureaucracy and policy complexities, India is often rightly transparency and accountability to the infrastructure sector. criticised for being slow to grant permission and concessions to private sector companies interested in planning and executing Significance of PPP infrastructure projects. PPP overcomes this through better risk “The infrastructure gap in the country is holding back economic allocation by allocating risk for land acquisition, developing growth by 1.5-2% every year. ” – Planning Commission of India connectivity to the project site, ensuring timely permissions and (2010-11). This statement underscores the significance of PPP authorisations, regulatory risks, and political risk to the public sector. and India has resolved to bridge this gap through PPP initiatives. Investment in infrastructure as per the country’s 11th Five-Year Plan Building confidence in private sector is to the tune of INR 7,656 billion (USD 153 billion) from the Central The Indian government has done a good job in ensuring that the government and INR 6,709 billion (USD 134 billion) from various private sector develops confidence and is comfortable about entering state governments, with INR 6,196 (USD 124 billion) billion from the a PPP. The Indian government has ensured the efficient facilitation private sector, chiefly through PPPs. of PPPs by putting Model Concession Agreement (MCA) documents in place for (a) national and state highways, (b) sea port terminals, PPP Variants (c) non-metro airports and green-field airports, and (d) railways. It The beauty of a PPP lies in its versatility. There are several ways has also put in place a structure for a Viability Gap Funding (VGF) to execute PPP projects, suiting the different needs of different scheme to enhance the financial viability of PPP projects and set up infrastructure projects. Some of the most widely used variants are as the India Infrastructure Project Development Fund (IIPDF) to provide follows: loans to meet development expenses.
Asia Pacific Property Digest • Third Quarter 2011 15 IndiaSuccess stories Leveraging real estate• Roads: the Jaipur-Kishangarh Expressway, the Mumbai-Pune One of the major achievements of PPP projects in India has been the Expressway and the East Coast Road leverage of real estate to cross-subsidise infrastructure capital. This• Ports: Pipapav, Mundra and Krishnapatnam has proved to be the biggest attraction for private agencies to plan and execute infrastructure projects. For example, in the case of Delhi• Railways: Pipapav Rail and Kutch Rail airport spreading over 5,000 acres, for a project cost of about INR• Airports: Hyderabad, Bangalore, Delhi and Mumbai 10,500 crore (USD 21 billion), development rights for only 45 acres• Power: Vishnuprayag, Mundra and Sasan Projects of land (out of 250 acres allowed for commercial development) were monetised for about INR 2,500 crore (USD 5 billion)! At this rate theConstraints investment can be easily recovered from leveraging real estate inDespite these success stories, it is also important to identify and less than 15 years on a highly conservative basis and the concessionappreciate the constraints faced by PPP projects in India: is for 30 years with renewal provision for another 30 years, thus• Project level constraints: underlining the importance of leveraging real estate in infrastructure projects. – Issues in concession agreement – Land acquisition problems With about half of India’s one billion-plus population expected to live in cities by 2020, meeting the infrastructure requirements is a great – Uncertain revenues (project feasibility issues) challenge and leveraging real estate is arguably the most efficient – Creditworthiness of customers (esp. government agencies’ – perhaps the only – way to achieve this mammoth task. Real estate past record of delays in fund infusion, and granting necessary allied with infrastructure is still a rare commodity in India and the permissions) private sector understands perfectly the premium attached to it. With• Institutional constraints: the opening up of Indian real estate to FDI in 2005, the pairing of real – The lack of experience estate with infrastructure seems to be key to solving the infrastructure deficit India is striving to overcome. – Asset-liability mismatch – Inadequate financial structuring About the Author – Limited access to multiple fund sources Ashutosh Limaye is the headWay forward of Research and Real EstateIndia’s PPP sector is now mature and experienced. As India is Intelligence Service, formarching towards greater transparency and accountability, it is Jones Lang LaSalle in India, basedalso improving its project feasibility research, finance structures in Mumbai. He has an experienceand execution capabilities to better its performance. The intention in real estate consulting for overby both public and private agencies to join hands to deliver world- eight years and was heading JLL’sclass infrastructure promises to bridge the gap that exists between Strategic Consulting business foravailable and necessary infrastructure, and to boost India’s economy West India until June 2011. He hasand overall growth. worked on several PPP projects in India, including modernization of Mumbai and Bangalore Airports,India is already significantly moving towards: World Bank funded Mumbai Urban Transportation Project, and• Evolving more robust concession agreements Seawoods suburban train station, Mumbai. He is an architect and• Streamlining the land acquisition process urban planner with a total work experience of over 14 years in real estate, Urban Planning, Urban Governance, and Architecture.• Credit enhancement for projects• Capacity-building on a pan-India basis in order to scale up human capital• Making external commercial borrowing accessible• Expanding Scope of Venture Capital Funds to allow investment in all infrastructure sectors