The investment climate in Asia remains warm and seems optimistic in spite of outside forces threatening to cause some economic shifts. The recent Emerging Trends in Real Estate Asia Pacific 2014 report by Urban Land Institute and PWC expresses a rather positive view recognizing the strong fundamentals for Asia's real estate.
The UN World Investment Report 2014 also shares an optimistic view of the investment climate in Asia, as most parts in the region registered an increase in foreign direct investment flow. The ASEAN group, in particular, was cited for its outstanding FDI performance, recording a 7% increase in 2013 from the previous year.
In case you are looking to invest in Asia, we've listed down some of the top destinations/cities to consider:
Japan has recently re-emerged as a top-ranked market for investment and development with high investor confidence supported by the positive economic impact of Abenomics policies as well as the clear signs of a cyclical recovery in property fundamentals in key markets. This led to a burst of property purchases with the expected rise of prices with Japan posting a significant increase in transaction volume in 2013. It benefited from capital flows coming from other Asian regions.
Japan was cited as one of the best places to invest in Asia because of its stable political system, low-to-moderate transaction costs, and good rental market, particularly in Tokyo. Its pro-landlord system was also attributed for its increasing popularity as a top investment market. Other than Tokyo, Osaka, Sapporo, and Fukuoka are also attracting investor interest.
There's been a marked increase in investor interest in Asia's emerging markets, which include assets in Jakarta, Indonesia. With cap rate compression affecting the level of returns, investors are looking for alternative markets that can provide better opportunities. The new supply of office components in Jakarta has greatly improved in terms of quality. The market is sustained by high demands from companies that are looking for commercial and office space.
Although Jakarta has issues with market transparency and has been cited for some difficulties involving entitlement and competition among local businesses, it has been ranked high in terms of investment potential and development prospects. Some attribute Jakarta's strong appeal as a good investment destination to its high yields and a tenant-neutral market.
Shanghai, China has gained favorable sentiments as a top investment market in Asia. Even when facing cap rate compression and a rather stagnant rental growth, this city in China still attracts foreign investments because of its perceived low-risk market. Investors are more willing to invest in Shanghai than in other cities in China. Companies and investors that are placing money in China consider Shanghai to be a rather comfortable place to invest. The city has received positive ratings for its investment and development prospects. It has been listed as a top investment city by some because of its fast-growing economy and pro-landlord rental market.
In recent years, the Philippines has posted strong economic growth rates. With its fast-growing economy, (Metro) Manila has become a favored destination for investments. Much of the economic activity and progress is driven by a strong BPO industry. The city has become a top destination for global companies that require outsourced services. The lack of transparency and poor governance have turned away some investors in the past. Fortunately, issues associated with these are seen to be improving, and this helps gain back business and investment confidence in the country.
The city's appeal as a top investment market in Asia also has much to do with its stable capital inflows from overseas Filipino workers and its young demographic. It has quickly transformed as a global service center because of the country's high English proficiency and strong affinity to the Western culture, aside from its massive pool of skilled workers and flexible cost infrastructure. It was also ranked as among the best places to invest because of the high yields in luxury properties, its growing expat rental market, and pro-landlord luxury market.
For more information and data on Asian cities, please see our Asia Pacific Investment Quarterly which you may download and access here.