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News Release

Hong Kong

Asia Pacific transaction volumes dip in 1Q

Hong Kong: Investment demand from mainland continues

HONG KONG, 26 April 2016 - Asia Pacific's real estate transaction volumes in the first quarter of 2016 fell 5% y-o-y to US$23.7 billion as weakness in Japan outweighed gains in Hong Kong, Australia and South Korea, according to JLL's latest global capital flows research.

Volumes in Japan, the region's biggest market, dropped 26% y-o-y but climbed 65% q-on-q to US$9.6 billion.

"The BOJ's  (Bank of Japan) decision to move to negative interest rate policy earlier this year caused some uncertainty," explains Megan Walters, Head of Asia Pacific Capital Markets research. "A number of deals were pulled from the market to be refinanced."

Hong Kong had a couple of big asset sales pushed volumes up 186% y-o-y to US$2.9 billion in 1Q16. Investment appetite by mainland investors showed no signs of abating after setting record transaction pricing in 2015. China Everbright bought Dah Sing Financial Centre in Wan Chai for about US$1.3 billion and LINK REIT's US$760 million acquisition from the government supported the deal flow in 1Q16.

However, investment activity was noticeably subdued elsewhere in the market and secondary home sales came to a standstill in 1Q16 due to the ongoing housing market correction. More assets should come to market, as current high pricing level may prompt developers to be opportunistic by locking in profits and sell non-core assets to shore up balance sheet.

Stuart Crow, Head of Asia Pacific Capital Markets at JLL said: "Investment appetite by Chinese investors showed no signs of abating after setting record transaction pricing in 2015."

Denis Ma, Head of Research at JLL in Hong Kong, said: "Tight vacancy, limited supply and a resilient leasing market continues to draw investor interest back to the sector. In 1Q16, investment into the sector topped the HKD 15 billion mark for the second consecutive quarter, double the average quarterly levels recorded over the past 5 years. Chinese investors continue push the boundaries of the market as evidenced by China Everbright's US1.3 billion purchase of Dah Sing Financial Centre during the quarter. Chinese investors have now been involved in three of the four largest en-bloc office transactions on record, which have all occurred in the past 6 months.  

Looking ahead, we expect to investment appetite for office properties to remain high. Chinese interest is also expected to spill into the government's land sales market after the Government included the Murray Road Multi-Storey Car Park onto this year's land sale programme. This will be the first development site directly offered by the Government via public sale in 20 years and already a number of Chinese investors has expressed keen interest in tendering bids.

In mainland China, volumes were 10 percent ahead of the same period last year despite the volatility seen in the country's financial markets at the start of 2016.

Mainland China recorded US$2.8 billion worth of transaction volumes, up 10% y-o-y, but significantly lower q-o-q after a record 4Q15. The result was partly due to a lack of willing sellers and as the real estate investment market increasingly became more polarised between Tier-1 and Tier-2 cities. On the policy front, China introduced new property cooling measures in Tier-1 cities to soften a housing market which has seen extreme price spike, after prices were seen increasing fastest in the last 10 years. Nonetheless, institutional investors will continue to seek core stabilised assets in major cities, which are scarce to come by given strong rental growth and after a record year of investment in 2015. Looking ahead, there may be more diversity of transactions as opportunistic investors seen likely to look for assets in other asset classes or distressed assets in secondary markets.

Intra-regional flows jump

In light of global economic uncertainty, Asian investors preferred markets closer to home. This was evidenced by the jump in capital flows between countries within the region.

Intra-regional buyer transaction volume rose to US$4 billion in the first three months of this year from US$1.1 billion the same period a year ago. This compares with inter-regional (international) purchaser capital flow, which fell by 74 percent to US$1.2 billion from US$4.7 billion.

"The fact that more Asian investors have chosen to put their money within the region is indicative of a shift in global investment trends as the region moves towards a more aggressive expansionary monetary policy mode," says Megan Walters, Head of Asia Pacific Capital Markets research. "Going forward, we could see more Asian capital staying within the region as a divide in global monetary policy continues with the US moving on to a restrictive policy approach."

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