India tops Asian real estate investment markets

India leads the pack of top real estate investment markets in Asia for 2010, according to a study by PricewaterhouseCoopers (PwC) and Urban Land Institute, a global non-profit education and research institute.

The report, which provides an outlook on Asia-Pacific real estate investment and development trends, points out that India, particularly Mumbai and Delhi, are good destinations. Residential properties are viewed as more promising than other sectors and Mumbai, Delhi and Bangalore top the pack in the hotel ‘buy' prospects as well.

The study is based on the opinions of over 270 international real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants.

Asia-Pacific hold up

Since the global economic meltdown, asset markets in the Asia-Pacific region have been holding up surprisingly well compared with their peers in Europe and the US. While pricing and rentals in the region fell steeply in 2008 and early 2009 in line with those in the West, markets across the region were boosted in the second half of the year by the remarkable resilience of the Chinese economy, which was buoyed by a series of fiscal and monetary stimulus measures.

As a result, many Asian markets have begun to flash positive signals toward the end of 2009. Transaction volumes have rebounded, although from a very low base, led overwhelmingly by China, the report said.

“The relatively stronger fundamentals and the lack of dependence on foreign demand are seen as key advantages as India has managed to mitigate the severe recession that has hit most other Asian countries.

“The recapitalisation by players in equity markets across Asia has been successfully replicated by some Indian developers, which has helped ease the liquidity stresses,” said Mr Gautam Mehra, India Leader for Real Estate Practice, PriceWaterhouse Coopers.

Unlike the US and Europe, distress sale in Asia had been relatively minimal. This was due to several factors, including a relative abundance of liquidity; low loan-to-value ratios, leaving borrowers less vulnerable to loan servicing problems when the prices declined, the report said.

Further, Asian banks remain well-capitalised, having experienced few major losses from derivative investments and also because of the ability of many large investment institutions to recapitalise via the capital markets, (particularly in Australia and Singapore) allowing them to pay down debt.

Tentative rebounds

Despite the recent bullish atmosphere, rebounds in most Asia-Pacific markets (with the exception of China) appear tentative and fragile. Although Asia-Pacific governments will probably be able to sustain high rates of liquidity for the foreseeable future, their near term prospects are probably tied to developments in the West and in particular the US, where de-leveraging is far from over.

“The idea that the recession is likely over gives rise to the widespread notion that global economies will now revert gradually to the same trajectories as in the past, which is normally what happens when recessions end,” said the ULI Chief Executive Officer, Mr Patrick L. Phillips.

He said the aftermath was likely to be different because the imbalances that led to the global downturn remain embedded in the system and could not be quickly eliminated. Moreover, with spending by the Western consumers no longer acting as the primary engine of global economic growth, a new driver was needed to boost the world's economy, and, in turn, the global real estate industry.