Asia-Pacific has overtaken Europe to become the world’s biggest real estate investment market for the first time, thanks largely to the booming Chinese property industry.
This rapid growth is triggering a wave of new high-rise construction, with the number of super-tall 300m plus buildings tripling in less than a decade.
Half of the world’s tallest buildings were constructed in the past four years, and 90 per cent of these were in China, southeast Asia or the Middle East, according to a research report by insurer Allianz. Nearly a third of the world’s tallest buildings were in China.
The rapidly growing Asia-Pacific market – up 9 per cent year on year – pushed the global value of commercial real estate stock held by investors to a record of $12.9tn in 2013, figures from property advisory company DTZ show.
The Asia-Pacific market is now worth $4.6tn, overtaking Europe, which grew just 2 per cent to $4.4tn, DTZ found. The Chinese market, which has grown by a compound annual rate of 32 per cent in the past decade, has overtaken Japan to become the largest in Asia-Pacific.
This had taken it from the world’s 10th-largest market to the second, behind the US, DTZ said.
The renewed activity is fuelling a surge of tower building: half of the world’s 100 tallest buildings are in Asia-Pacific, three times the number in North America, according to Allianz.
The construction shift eastward is being driven by investor demand for flagship real estate assets, growing populations and low labour costs, Allianz report author Ahmet Batmaz, Allianz global head of engineering risk consultancy, said. “These buildings are prestige objects to show the power and wealth of these areas and regions.”
Fears have grown in recent months about the levels of debt in the Chinese real estate market, particularly as property prices have begun to wobble. But the average gearing of Chinese investors was “well below those of Europe or the US” at 54 per cent, Hans Vrensen, DTZ global head of research, said.
“There is a very large pipeline of new developments which will trigger a rise in vacancy rates,” he warned. “But the problems in China will not be as severe as in Europe, because the leverage ratios are not the same.”
De-gearing could open up the Chinese market to international distressed-debt investors, he added, offering “a massive opportunity”.
“Everyone wants to have a share of the Chinese market and maybe that opportunity is coming up now as developers need to fund their upcoming activity by selling off some of their assets,” he said.
Global investment activity hit a post-crisis high of $528bn, driven by an upswing in cross-border investment which made up nearly a quarter of all transaction volumes, DTZ found – the highest level since the financial crisis and a sign of world real estate markets returning to their pre-crisis norms.
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