Financial institutions raise cash in Asia Pacific

Buyers’ market for property
Financial institutions with sub-prime problems are looking to raise cash in Asia Pacific, reports Nina Suebsukcharoen
Financial institutions hurt by the credit squeeze in the US and are unable to get fresh funds as refinancing deadlines approach are selling assets across the region, turning it from a sellers’ to a buyers’ market in just six months, says Robert McKeller, the CEO for Asia Pacific of the property firm Savills.

Aside from Australian funds selling their real estate, those in Japan, Hong Kong and Singapore are also doing so, he said in a recent interview in Bangkok. ‘‘Savills has never had so many instructions to sell.’’

Wealthy individuals are benefiting from this trend, some re-entering the market after having obtained handsome profits from selling properties to these funds two to three years earlier.

Savills recently sold the Trade Square building in Hong Kong to a private buyer for HK$1.518 billion, or approximately US$200 million, the biggest deal in the territory this year.

‘‘They (private buyers) are making a big, fat profit and what you are seeing in Japan, Australia and other parts of Asia where some of the American funds that are highly leveraged . . . may be forced to sell and sell at a price that maybe they otherwise would not have wanted to sell at, say, six months or a year ago,’’ said Mr McKeller.

The discount in a forced sale was typically around 20%, he added.

Real estate prices in the US have also come down by more than 10%, and the country is unlikely to work its way out of its problems in six to 12 months as some optimistic commentators have said.

‘‘There was a study done saying that it may take up to 2017 before prices come back to anywhere what they were like in the last year,’’ he said.

There is also a major difference, he says, between previous recessions and the one the US is now entering. ‘‘The previous recessions . . . have been corporate-led recessions that have been quick, short and sharp. You clean out some of the defaulters, the companies that have gone bust, that haven’t performed, fine.

‘‘But this is a consumer-led recession based on the fact that the value of their homes and equity has come down and that . . . won’t won’t go away in six to 12 months.’’

The UK is also looking very difficult with real estate prices down.

Mr McKeller mentioned a recent article in The Times which said that 40,000 jobs would go in the City of London financial markets this year.

Asia cannot escape because the theory about Asia ‘‘decoupling’’ with the US is questionable when one realises that 60% of the region’s exports go to G8 countries.

‘‘Having said that, there is still so much money in Asia — the sovereign wealth funds, the Chinese, the Singaporean, the Taiwanese and Middle Eastern money coming, those who have cash and don’t rely on debt are still looking to buy real estate,’’ said Mr McKeller.

‘‘It’s a very interesting situation because you have a lot people who are being forced to sell because of financing, the cost of debt, they can’t get financing or interest is getting more expensive, and those who are waiting with cash are waiting for prices to fall even further before they buy, so this is a little bit of a stalemate. Hopefully that will soon pass and we will see more transactions in the marketplace.’’

While the outlook is for the region to turn into a buyers’ market, there are pockets that buck the trend, Taipei among them.

The Taiwanese government’s warmer stance toward China, which has led to direct flights being started, has boosted property transactions. Tokyo too is looking robust despite the fact that the Japanese economy has been stagnant for years. Savills is not seeing a major shift in prices there except for sales by heavily leveraged Americans.

‘‘Most of the Japanese real estate is held by Japanese funds and Japanese companies and they don’t trade assets, they keep them for generations.’’

Another pocket is Thailand which has not seen overall prices increase at the pace they did in Hong Kong and Singapore in the past two to three years.

Robert Collins, Savills’ chief in Thailand, said Thai banks did not have significant exposure to the sub-prime crisis and therefore local lending had not had a direct impact and this was one of the reasons prices are not softening here.

‘‘Also, on the back of tourism, the overall residential market is still holding up very well,’’ said Mr Collins. ‘‘Private investment is still very good generally speaking, there is a lack of stock and supply that is investment grade but overall the sentiment still remains quite positive.’’

While real estate developments are still taking place in China, financing is getting difficult there too with the government placing some curbs on lending to cool the market.

‘‘We have been advising some sovereign wealth funds, Middle East buyers about . . . co-investing with Chinese developers who need money, otherwise the developments they are working on will not happen,’’ says Mr McKeller.

Hong Kong residents are among those eagerly waiting for lower prices because they can borrow at 2.5% a year.

Meanwhile, Singapore, where property prices soared over the past few years, is going through very testing times.

Mr McKeller cited research showing that luxury property prices will fall by 18% this year followed by 10% and 15% respectively in the following years.

‘‘In Singapore we advise them that for those blocks with luxury residential, you’re going to have to look at 10, 15, or 20 percent reductions in the sales price if you want to get that stock away. If you want the sales, forget about last year’s prices. It’s a different market and you are going to have to drop your prices.’’