Minggu, 10/02/2008

Shanghai Tops, Jakarta at Bottom

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Shanghai Tops, Jakarta at Bottom

A SURVEY CONDUCTED by Urban Land Institute and PricewaterhouseCoopers entitled “Emerging Trend in Real Estate Asia Pacific 2008”, which was published at the end of 2007, put Shanghai at the top among the cities in the Asia Pacific region, a city most-favored for property investments. Meanwhile, Jakarta ranked 20th, the lowest, below Manila, Bangkok, Melbourne, Taipei and Sydney. Does it mean that cities outside the top ten are not attractive to investors? The yearly survey conducted for the second time and published recently by Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC) put Shanghai at the top of the list, which means that in 2008 the city provides the brightest prospect for investors doing business in the property sector in Asia and the Pacific. In 2007, however, Shanghai ranked second after Osaka. In 2008, Singapore is in the second position and is followed by Tokyo, Osaka, Hong Kong, Beijing, Seoul, Ho Chi Minh City, Guangzhou, and Mumbai in the 10th. Other cities are in the 11th-20th position, namely Kuala Lumpur, Bangalore, New Delhi, Auckland, Sydney, Taipei, Melbourne, Bangkok, Manila and Jakarta.

In the hot market ranking, this year Shanghai, Singapore, Tokyo and Osaka seem to have strong magnets in the eyes of property investors. This is because in 2007 Osaka was the city most attractive to investors, which was followed by Shanghai (2), Tokyo (3) and Singapore (4).

There is something interesting with this year’s top ten group. Hong Kong, which previously ranked 11th, is in the 5th position replacing Taipei that ranks 16th. Meanwhile, Seoul moves up to the 7th position from the 13th , Ho Chi Minh City from the 12th to the 8th position, while the spectacular phenomena is Mumbai moving up from the 17th in 2007 to the 11th position in 2008. In the second layer that covers 10-20 ranks, the Kuala Lumpur property market seems to be more attractive as compared with other cities from the same layer. In 2007, Kuala Lumpur ranked 15th, but it is in the 11th position this year.

Bangalore’s rank goes down from the 10th to the 12th, while New Delhi moves up from the 14th to the 13th position. Three cities with significant poor performance are Taipei, Melbourne and Bangkok, which in 2007 was among the top 10, ranking 5th, 6th and 8th, respectively, and this year they are in the 16th, 17th and 18th position.

Meanwhile, the position of Manila and Jakarta has not changed significantly. In 2007, Manila’s property investment prospects ranked 18th , while this year it is in the 19th position. Meanwhile, Jakarta ranks 20th this year, down from the 19th in 2007. From the ranking made by ULI and PwC, it could be seen that the property market in cities like Hong Kong, Seoul, Ho Chi Minh City and Mumbai—which were not among the top 10 in 2007 as they respectively ranked 11th, 13th , 12th and 17th –this year moves up to the 5th, 7th, 8th and 10th positions, respectively, reflecting on their fantastic growth.

In the second quarter of 2007, based on a research conducted by Jones Lang LaSalle, the Hong Kong property market experienced a positive net-up for all property sub-sectors, notably for Grade A office space, which saw 75 percent on average of their units rented out under pre-commitment systems.

Meanwhile, a research conducted by Colliers International found that in the second quarter of 2007 large amounts of office space in Hong Kong were absorbed including the office space at CITIC Tower, Oxford House, One Pacific Place, and International Commerce Centre where Morgan Stanley currently rents space of 350,000 sq ft. AREIF Investment Holding Pte Ltd has bought 94,300 sq ft of space at a building on 88 Gloucester Road. In Seoul, demands for Grade A office space at its business center areas also rose in the third quarter of 2007.

Big transactions involved Morgan Stanley that bought 1.43 million sq ft of office space at Daewoo Center Building, National Pension Service (Seoul City Tower, 646.700 sq ft), and Deutsche Bank Real Estate Investors that bought office space at Daewoo Securities Building and Tong Yang Investment Bank Building, 415,500 sq ft and 471,900 sq ft, respectively. Office buildings like Dae A Building, Do Il Building, Hansol M. Com Building, Shinsong Center and Sewoo Building also generated big revenues by renting out their space to tenants from the banking, construction, chemical and insurance sectors.

Demands for office space in Seoul are predicted to continue rising until 2010. Although the supply of quality office space in Ho Chi Minh City is limited and space occupancy was 100 percent in 2007, in the 2008-2010 period the construction of new prime office buildings in that city will surely continue to increase quite drastically. Colliers International estimates that demands for office space in Ho Chi Minh City in 2008 will rise by 8 percent. Meanwhile, in Mumbai, major office space transactions are predicted to reach 50,000-100,000 sq ft, keeping the city attractive to investors.

Asia’s Economy

It is undeniable that after the severe economic crisis hit Asia in 1997, the region’s economy was driven by China, Japan and Singapore. In line with their rising economic growth, the property industry in those countries has developed so rapidly, leaving other Asian countries far behind. According to the Jones Lang LaSalle research, in 2006 property transactions in Japan rose by 128 percent to reach US$52 billion. Meanwhile, Japanese property investments in other countries rose by 43 percent worth US$13 billion in the same year. Not surprisingly, so far Osaka and Tokyo have always been picked as the most popular destinations for property investments.

Putting Shanghai at the top is not an exaggeration, on grounds that its property sector has recorded a fantastic growth. Colliers International said late last year that foreign investments in the Shanghai property industry totaled US$2 billion. Indeed, the city is so alluring that foreign property investors have raised their investments in the area, including those from Indonesia like Lippo Group, Sinar Mas Group and Summarecon Group that have developed several property projects in Shanghai.

Investments of Indonesian developers in Shanghai are much smaller than the giants from Singapore, Malaysia, Hong Kong, Brunei Darussalam, European countries and the United States. CapitaLand from Singapore and Sun Hung Kai and Lee Kasing from Hong Kong have invested big amounts of capital worth hundreds of trillion rupiah each in Shanghai. With a population of 20 million people, surely Shanghai is a promising property market.

Just imagine! Buyers have always rushed to buy any new apartment despite their high prices. Some developers even sell their apartments units for RMB150,000 per sqm or around IDR165 million per sqm. This condition has enabled Shanghai’s supporting areas like Pudong and Pusi to make profits as their apartment units are even offered at RMB12,000-25,000 or equivalent to IDR13 million-IDR27 million per sqm. Even, Pudong is now the world’s most rapidly developing business center.

New worries have emerged in mainland China including Shanghai, namely worries about a possible “overheating” in the country’s property market. In 2003, the Chinese government warned about such a possibility because at that time the country’s property market was overheating, causing worries that it could become a boomerang for the Chinese property industry. Moreover, as disclosed by ULI and PwC, there are risk factors in property investments in China including government policies that limit the accesses to its property market and the overly competitive property prices.

This situation has caused the Japanese property market more attractive than the Chinese market although survey results show that Shanghai’s position is above Osaka and Tokyo. Surely, the survey conducted by ULI and PwC does not provide an undebatable prediction about the strengths of cities in attracting property investments. Which means that not being included in the top-10 category never means that a city has no investment prospect. Even, the results of a research conducted and published by Property Advisory Indonesia (Provis Cushman & Wakefield) show that the rental growth in the office space market in Singapore, Beijing, Mumbai, Kuala Lumpur, Bangkok, Sydney, Shanghai, New Delhi and Chengdu has started slowing down.

Meanwhile, the rental growth in Taipei, Jakarta, Tokyo, Seoul, Bangalore, Hong Kong and Ho Chi Minh City is experiencing an accelerated upward trend since the third quarter of 2007 up to this time. As regards the office space market in Jakarta, by the end of December 2007, the cumulative supply of rented office space in the Central Business District totaled 2.9 million sq. m with occupancy totaling 85.2 percent. New space supply came from three new office buildings whose construction was completed in the fourth quarter of 2007. The buildings were The East (47,500 sq. m), at Mega Kuningan; Standard Chartered Bank Tower that is called Menara Satrio (47,400 sq. m) on Jl. Prof. Dr. Satrio; and Pacific Place Office (20,250 sq. m) at Sudirman Central Business District (SCBD).

They increased the office space supply at CBD by 7 percent from 2006 to total 3.42 million sqm. But, beside the office space sector, the retail and condominium sub sectors in Jakarta also have experienced a significant growth, but no doubt it will slow down slightly in 2008. In the fourth quarter of 2007, according to Provis, Jakarta’s property retail market showed an upward trend after foreign property retailers like Marc Jacobs, Club Monaco, Make-Up Store, and Velvet at Plaza Indonesia entered Indonesia.

Also, Habitat’s furniture and home accessories at Seibu and Grand Indonesia, and the opening of new outlets of Topshop Topmen and Oakley at Grand Indonesia, Aldo Collection, Sebastian’s, BSC, and Domicile at Plaza Indonesia; Tissot, Canali, Longines, and Ivy at Plaza Senayan; Nike at Mal Puri Indah; and GAP at Mal Kelapa Gading. Further, large transactions of retail space in the fourth quarter of 2007 involved names like Kem Chicks, Kidzania and Blitz Megaplex at Pacific Place; Hypermarket (Plaza Pondok Gede II); Carrefour (Plaza Taman Modern); Star Department Store (Mal Kelapa Gading 1); and Parisian Department Store at Mal Taman Anggrek that occupies a space of 16,000 sqm. As regards the condominium sub-sector, in 2008 its growth is predicted to be below the level achieved 2-3 years ago.

But, the downtrend of the condominium market will be offset with the building of many new strata-title, low-cost, apartments. Apartment unit prices are estimated at IDR150 million each. At this time, developers are building such apartments with subsidy funds from the government.

Demands for such apartment units are so big so that a number of upper- class developers have also entered the middle-low market because the strata-title apartment market for middle-class buyers has now reached the saturation level. Although the strata-title apartments are meant for middle-low buyers, the capitalization of a low-cost apartment project is quite big as it can even reach IDR500 billion.

How about Manila? Although the sub-prime mortgage crisis has brought down trading on the Philippines’ bourses by 15 percent, the performance of Manila’ office building sub sector remains relatively good. By the third quarter of 2007, idle space at the city’s office buildings was below 3 percent and is predicted to be 5 percent at the end of last year. Sydney, which ranked 15th last year, also recorded a quite good growth in its property market. Office buildings at its CBD, for example, in 2007 experienced a growth of 10-12 percent with their idle space being at 5.6 percent.

Transactions of large strata-title apartment space in Sydney were also continuing to rise last year. Macquarie Office Trust bought space of no less than 200,000 sq ft at 59 Goulburn Street; and doing a similar move were Charter Hall, New Star, Lion Nathan, Lehman Brothers, Macquarie Bank, Mission Australia, Pitcher Partners, and the largest was Australian Taxation Office that acquired 247,600 sq ft space at World Square 395-401 Pitt Street.

Weakening World Economy

International Monetary Fund (IMF) estimates that this year’s global economic growth will slow down and reach 4.1 percent, or below the initial projection of 4.9 percent. The slowdown will be due to sub-prime mortgage crisis in the United States. There was in the United States a turbulence in the financial sector and a sub-prime mortgage crisis, and accordingly its economic growth in 2008 is estimated to reach only 1.5 percent, below last year’s 2.2 percent.

Even the IMF estimates that Europe’s economic growth of this year will be only 1.3 percent, below last year’s 1.6 percent. Asia also cannot escape its economic slowdown. The IMF estimates that Japan’s economic growth of this year will be only 1.5 percent, or 0.2 percent lower than the initial projection made last October. Meanwhile, the economic growth of India and China–the two economies with highest growth in Asia–also will decline from last year. The Indian economic growth was 7.8 percent in 2007, which is estimated to drop to 6.9 percent this year.

Meanwhile, China’s economic growth will fall to 10 percent in 2008, from last year’s 11.4 percent. In the meantime, the economic growth of developing countries, according to the IMF estimate, will average 6.9 percent this year, down from last year’s 7.8 percent. Nobody is sure that the IMF estimates are fully accurate. But, at least its prediction can be useful to map the global economic condition. Economically, Asia is now better than the United States and Europe. Currently, Japan, China and India are acknowledged as the main generators of the Asian economy.

The weakening economy of the United States and Europe will slightly impact the economic growth of the three Asian countries. Even, a research conducted by Goldman Sachs in 2004 showed that the economic capability of Brazil, Russia, India and China – abbreviated as BRIC – would exceed the economic capability of the G6 countries (US, UK, Germany, Japan, France and Italy).

Whether or not the prediction of Goldman Sachs will become a reality – while keeping in mind that any geo economic changes will cause geopolitical changes if Goldman Sachs’ estimate comes true – the growth of the property industry in each Asian country remains interesting to observe considering that property is an engine so crucial to the economy of any country in the world. And, how how far will the US sub-prime mortgage crisis affect the performance of the property market in Asia and the Pacific?

According to Arsh Chaundhry, executive managing director of South-East Asia Chushman & Wakefield, the US sub-prime mortgage crisis will not greatly impact the economy of Asian countries, including the performance of their property industry. This is because, Chaundhry argues, Asia’s dependence on the United States in trading is declining.

“This is why we remain optimistic with the Asia-Pacific property market,” he said in Jakarta recently. However, Chaundhry’s views are not fully correct. China’s Central Bank recently issued statements that its economic growth was not separate from the growth of the US economy. There is one interesting phenomenon: correction of the Asia Pacific property market, which denies the roles of Western countries. Apartment buyers in Singapore, for example, are mostly Asians, and the majority of them come from Indonesia. Similarly, most buyers of property projects in Malaysia and Australia are Indonesians.

Moreover, Indonesian investors are now busy carrying out property projects in a number of Asia-Pacific countries. The interconnection of the Asia-Pacific property market is worth noting as far as Indonesia is concerned. Indonesia is actually not yet open to foreign investments especially foreign ownership in its property sector while other countries have gained advantage of their government’s pro-market policies.

The impacts of any government policies that limit people’s accesses to a country’s property market, especially the accesses for foreigners, no doubt will cause big losses to its property industry. Indonesia is an example. At this time, the Indonesian government still limits foreigners in owning property in the country so that several sub sectors like condominiums enjoyed their golden days in a relatively short period of time and then experienced oversupply.

If foreigners are not limited in owning property in Indonesia, surely the Jakarta condominium market—especially the upper middle class market—will continue to enjoy their golden times. Moreover, property yields in Jakarta are quite high as compared with those in other countries. They are currently 7.9 percent in Jakarta, for Grade A office space; 15 percent for prime retails; and 10.7 percent for luxurious residences.

Meanwhile, in Shanghai, the world’s best city in terms of property investment prospects, office pace yields are only 8.2 percent; prime retail yields are only 11.3 percent; and luxurious residence yields are only 5.5 percent. In Singapore, they are only 5.2 percent, 5.8 percent, and 2.8 percent for Grade A office space, prime retails, and luxurious residences, respectively.

The lesson that can be learned from the above description is that Indonesia should be more open to foreign investors, thus giving them greater accesses to its property market. If this happens, the country’s property industry will develop more significantly. There is no question that property industry is the locomotive of a country’s economy, and its reliability is so clearly proven. (Deddy H. Pakpahan)

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