Asian real estate offers better value than property stocks because the region’s equity markets are still “vulnerable,” said Marc Faber, an investor who predicted the US stock market crash in 1987.
“I’m optimistic about Asia and emerging markets, but the stock markets at the present time are still vulnerable,” said Faber, who oversees $300 million (Rs1,320 crore) in assets at Hong Kong-based Marc Faber Ltd. “As an asset class, real estate in Asia presents tremendous opportunities” as “urbanization gets under way”.
The Morgan Stanley Capital International Asia Pacific Index tumbled 3.5% the week ended 2 March, the highest since July, sparked by the biggest plunge in Chinese stocks in a decade. Asia’s economic expansion is expected to drive demand for real estate, attracting interest from investors drawn to rising rents, Faber said in an interview. East Asian economies, including China and India, are expected to expand 4.4% this year, compared with 2.7% in the US and 2% in Europe, according to the Asian Development Bank.
Rental rates for office space in Singapore’s central business district rose to $644 per sq.m ($60 a sq.ft) at the end of 2006, still lower than the $692 that landlords were fetching in 1996 before the Asian financial crisis, according to Leslie Chua, head of research at Jones Lang LaSalle in Singapore. In Hong Kong, rents reached $1,105 in 2006, lower than the high of $1,237 in 1994. Chua estimates that rents in Hong Kong will rise 10% this year, and jump 50% in Singapore. The property consulting company also estimates demand for Singapore office properties outstripping supply by five times.
“Property is fast becoming an alternative asset class like gold,” Chua said.
Hong Kong billionaire Li Ka-shing’s Cheung Kong (Holdings) Ltd is among the biggest developers in both cities. CapitaLand Ltd, Southeast Asia’s biggest developer, has also expanded its real-estate projects to China and Australia.
To be sure, gains in property prices have trailed those in stocks. The value of Singapore’s office buildings rose 17% in 2006, according to government data, compared with the 65% gain in the city-state’s property stock index. Faber says the smaller gain offers opportunities for investors.
“If you compare Singapore to an equal city in the West, like London or New York, Singapore is not expensive, it’s reasonable,” Faber, the publisher of the Gloom, Boom and Doom Report, said on Monday. “They are not in a bubble stage like they were in 1996 and 1997.”
China and Vietnam, two of Asia’s fastest-growing economies, are also attractive real-estate markets, Faber said. Vietnam’s economy, which expanded 7.4% annually in the past decade, is expected to grow at least 8% a year in the next 10 years, according to government forecasts. China’s economy, which expanded 10.7% in 2006, the fastest since 1995, has grown an average of 9.2% in the past decade.
In the past month, Citigroup Inc.’s property unit raised $1.29 billion for an Asian real-estate-related fund, and Prudential Plc. also plans to invest as much as $1 billion in the region’s property market. Gome Group, owned by China’s richest man Huang Guangyu, teamed up with Pacific Star to invest $800 million in the country’s property market.
“Stock markets go through cycles, there are ups and downs and this leads to speculation and volatility,” said Pietro Doran, who manages $650 million in real estate at Seoul-based Doran Capital Partners. “In the long term, for real estate, it’s more steady.”