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Property

Asian commercial property suffers first quarterly decline in two years

Real estate transactions hit by higher interest rates

With the government reining in lending to investors and developers, China's market for existing commercial properties is at its lowest point in five years.   © Reuters

SINGAPORE -- Asia-Pacific has suffered its first quarterly decline in existing commercial building investment in more than two years, according to an analytics company that tracks the sales of offices, industrial complexes, retail properties, apartments and hotels.

In the three months through September, investments in these income-producing buildings fell 29% on the year to $27 billion, according to Real Capital Analytics. This was the first decline in nine quarters. 

A number of factors are at work, most notably the frantic moves by some of Southeast Asia's central bankers to raise interest rates and defend their currencies against the U.S. dollar. The trend is making it more difficult for real estate companies to finance new deals. Chinese authorities are also partly responsible as they rein in lending to investors and developers, RCA said. The country's trade war with the U.S. is also affecting investor sentiment.

In addition, investment volume rose 3% on a 12-month rolling volume basis for October 2017 to September 2018, the smallest year-on-year increase in six quarters, according to a quarterly report that RCA issued earlier this month. Twelve-month rolling numbers are used to smooth the bumps in quarterly transactions.

China, the region's largest market, had property investment of $34.1 billion, based on 12-month rolling volume, a 16% year-on-year decline and the lowest total in five years.

In big Southeast Asian economies such as Indonesia, the Philippines and Vietnam, the 12-month transaction volume to September fell more than 25% year-on-year. The interest rate increases in these countries are "increasing the cost of real estate funding," the RCA report says.

Japan's transaction volume hit its lowest point since global financial crisis of 2007-2008. South Korea, however, bucked the trend, with the volume of deals jumping 23% on strong interest from domestic buyers.

"With property yields at historic lows and tighter financing conditions looming, or already encroaching in some markets, activity seems to be shifting into a lower gear as investors determine whether the next stage of the investment cycle is on the horizon," said Petra Blazkova, RCA's senior director of analytics for the Asia- Pacific.

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