The United States Federal Reserve’s recent announcement that it will cut monthly purchases of mortgage-backed and treasury securities from US$85 billion to US$75 billion is likely to have positive implications for the Asia real estate market, international property brokerage CBRE has predicted.
Since the Fed’s summer announcement that it might begin tapering at some point in 2013, the market has been struck with uncertainty about when and how fast tapering might come, making business decisions difficult.
However, the announcement can be perceived as business-friendly, CBRE said, as it specifies that rate and extent of tapering will both be “moderate”.
“The Fed’s announcement provides clarity about its policy stance, highlights better economic prospects in 2014 and frees up corporate decision-makers to implement plans for the coming year,” CBRE reported.
It maintains its view that the Asia-Pacific region will be the primary focus for global corporate expansion due to comparatively robust fundamentals of steady urbanisation, rising wealth and favourable demographics.
“The clarity around the Fed’s announcement will allow firms to make business decisions that may have been on hold for the past few months. We expect this to play out particularly in Asia in 2014 and eventually provide support to the rental market as firms seek to grow.
“There will be a lag of around six to 12 months before we see the impact on rentals from the improvement in business sentiment.”
It argues that for capital markets, since bond yields have reacted mildly to tapering plans and the Fed expects to keep the Fed funds rate at zero for the foreseeable future, global interest rates are expected to stay low and future increases will likely be gradual and cautiously tied to the pace of recovery.
“Investors will remain keen on yield-accretive investment vehicles which is positive for commercial real estate.
“Furthermore, investors will increasingly move up the risk spectrum in search for higher returns and shift their focus to secondary assets and non-gateway cities as yields on core assets in many parts of the world have compressed significantly.
“Over the longer term the expectation is that U.S. interest rates rise will normalise, and this could exert upward pressure on interest rates for property markets like Hong Kong and Singapore which rely heavily on foreign trade and have no capital flow restrictions – ultimately pushing up yield and return expectations on real estate investments.
“Property valuations in Asia could potentially be impacted by rising cap rates, but if improving fundamentals feed through into rising rents, this will partly offset the impact on property prices.
CBRE has one caveat.
“Given the likely extension of the Fed’s zero rate, in Asia it appears that excess liquidity will continue to be the dominating factor in determining asset prices, at least in the coming 12 months.
“Property yields are therefore likely to remain low over this timeframe.”
This story was first published by The Phuket News and is published as part of an editorial partnership between The Phuket News and PropertyGuru Group.
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