Tokyo’s property market will remain an “investment magnet” while Shanghai, Jakarta, Manila and Sydney will will also be attractive. Hong Kong’s standing has faded, says a report by PricewaterhouseCoopers and the Urban Land Institute.

Tokyo’s property market will remain the “investment magnet” while Shanghai, Jakarta, Manila and Sydney will also feature as attractions into 2014. Hong Kong’s standing has waned due to government efforts to curb prices, according to a report by PricewaterhouseCoopers and the Urban Land Institute.

The report, called Emerging Trends in Real Estate Asia Pacific 2014, says the fundamentals of the real estate market will remain strong next year across the region, arguing that unlike some other assets, property has been broadly unaffected by moves by the US Federal Reserve to taper, or reduce, monetary stimuli.

In a ranking of city investment prospects for 2014, with 23 cities in total, Tokyo is first, followed by Shanghai, Jakarta, Manila, Sydney, Guangzhou, Singapore, Beijing, Osaka and Shenzhen. Hong Kong is ranked at 18^th.

“While Asia’s robust market has been accompanied by higher prices and lower yields for core products, investors have reacted not by pulling away from real estate in Asia, but by finding new ways to make the numbers work, including a focus on specialised property types such as senior care or logistics, and on opportunities in emerging markets,” said ULI North Asia chairman Raymond Chow.

“We do expect some headwinds as rising interest rates compress yields further, but overall, we are very encouraged by the optimistic view reflected in the report,” he said.

“If we look at new ways to enhance returns, we can see investors are trying to enter at the development level and an increasing number of co-invested development deals are now being struck,” said K K So, the Asia Pacific real estate tax leader at PwC Hong Kong. 

“Several large institutional players that have opened offices in Asia in order to gain access to direct deals have opted to co-invest in development sites as a means of securing core assets that would otherwise be unavailable or be too expensive. This is something of a departure from normal practice at institutional funds, but is being driven mainly by necessity. Besides, we also see a trend towards lower opportunistic returns and investors are opting for longer investment windows,” he said.

Hong Kong

Hong Kong’s ranking has fallen in the investment prospect rankings in the years since 2011, as steep rises in home prices and some of Asia’s most compressed cap rates have stifled interest in both residential and commercial property markets, the report said of the jurisdiction.

International funds have mostly bypassed Hong Kong recently for a number of reasons, such as the government’s cooling measures (doubling of stamp duty on property deals; the city is also seen as highly sensitive to changes in US Fed interest rates because of the link between the dollar and Hong Kong dollar.

The report is based on views of over 250 property market professionals, such as investors, developers and property firms.

“The generally positive outlook for many markets throughout the Asia Pacific region is highlighted by the re-emergence of Japan (after a five-year absence from the top rankings) as a favoured market for investment and development. The country is one of the largest beneficiaries of capital flows from other regions within Asia,” the report said.

“Its [Japan’s] increasing popularity is attributed to the government’s massive economic stimulus plan, which has resulted in a flurry of property purchases in anticipation of rapidly rising prices. In addition to Tokyo, secondary cities in Japan, including Osaka, Fukuoka and Sapporo are gaining appeal among investors,” it said.