The total return for Asian property investment in 2013 was 7.2 per cent, rising from the 2012 figure of 5.8 per cent, according to the IPD Pan-Asia Return Indicator.
These returns are heavily influenced by Japan, which represents close to 50 per cent of the Asian real estate market.
Although performance improved in Japan in 2013, to 6.0 per cent up from 3.6 per cent, it remained the weakest of the Asian markets.
The Pan-Asia Return Indicator measures the performance of individual assets held within 254 institutional investment portfolios across Asia, and draws on income and valuation data on 4,172 assets. The assets in the database were worth USD295.4 billion as at 31 December 2013, up 7.8 per cent on 2012, despite the depreciation of the Japanese Yen.
Performance was also relatively modest in the second and third largest real estate markets of China (18 per cent of the total) and Hong Kong (17 per cent), at 8.2 per cent and 7.1 per cent respectively. It was the relatively weak performance of the three largest markets, which together represent over 80 per cent of the total, held back stronger performance of the region as a whole.
The strongest market was Indonesia, at 12.9 per cent in 2013, the fifth year of double digit returns. Malaysia, Thailand and Taiwan also generated performance close to double digits for the year as a whole.
Retail was again the best performing sector across the region with a total return of 9.9 per cent, although the improved performance of industrial investments in 2013 meant that retail edged ahead by just 77 basis points.
Income return slipped slightly in 2013 to 4.8 per cent from 5.1 per cent in 2012, leaving an income return for the Indicator at the same low levels seen at the inception of the data series in 2007. The five-year average income returns across all economies are higher than corresponding consumer price inflation rates, which is of particular interest to asset owners who often use inflation as a basic hurdle rate. Although these spreads exist, the low income returns indicate the aggressive pricing of real estate across the region. For five of the countries, income returns are at their lowest level since the inception of the Pan-Asia Return Indicator, and Japan’s returns are only 10bp off the lowest level.
Leslie Chua, executive director and head of Asia, IPD, says: “2013 saw another good year for real estate across Asia. Direct real estate performed well in 2013 compared with other asset classes. Direct real estate outpaced consumer price inflation and achieved higher returns than long-term government bonds in all economies. Except for Japan, Hong Kong and Malaysia, direct real estate even outperformed equities in 2013. Real estate continues to be a good asset class especially for some asset owners whose return targets are benchmarked with inflation and government bonds.”
In a global context, the 7.2 per cent returns were lower than the IPD Global Annual Property Index returns of 8.3 per cent which were driven by the US and the UK, and compensated for the weakness of much of Europe. More notable is the strength of global performance that outpaced Asia ex-Japan (at 8.1 per cent for 2013) for the first time since the series began.
Peter Hobbs, managing director and head of research, IPD, says: “Over the past seven years, Japan, as the largest weighted contribution to the Pan-Asia Return Indicator, has been a drag on performance. The total returns of the eight economies excluding Japan (Asia ex-Japan) performed extremely well during the global financial crisis pointing to its resilience and potential diversification play in a global portfolio. Asia ex-Japan returns have been high and volatility low, giving a return per unit of risk over four times higher than the US.”