Deutsche Bank AG’s RREEF real estate unit favors Hong Kong developers and Australian retail property trusts because low interest rates will fuel demand.
RREEF also likes Japanese developers of commercial properties, which will benefit from declining office vacancies. Tokyo office vacancies fell in September to 8.9 percent from 9.2 percent a month earlier, according to figures released today by Miki Shoji, a closely held office brokerage company.
“We like Japan developers, particularly the second-tier names, and in Australia, we like what we call retail defensive stocks, and are underweight the office names,” Daniel Ekins, who oversees $1.75 billion of real estate securities in the Asia-Pacific region, said in an interview in Sydney on Oct. 9, declining to specify names. “In Hong Kong, we’re overweight the developers and underweight REITs.”
Hong Kong developers will benefit as a third round of quantitative easing by the U.S. Federal Reserve keeps a lid on interest rates in the city, he said. The Australian central bank’s 150 basis points of interest rate cuts since November will help boost retail demand, Ekins said.
The Asia-Pacific region is expected to outperform the rest of the world, Chicago-based broker Jones Lang LaSalle Inc. said in its second-quarter Asia-Pacific Property Digest. Rents and capital values continued to rise in most parts of the region, although momentum slowed, it said.
RREEF is underweight Singapore residential developers because of policy concerns. Singapore, which has been trying to rein in home prices since 2009, last week said it was restricting residential home-loan maturities. The island-state also has introduced additional taxes, barred interest-only loans, and stopped developers from absorbing interest payments.
In the Asia-Pacific region, RREEF invests about 27 percent of funds in Japan, 25 percent in Australia and 48 percent in Asia ex-Japan, primarily in Singapore and Hong Kong, Ekins said. The group manages $10 billion of real estate securities globally.
Hong Kong developers are this month preparing to sell the most homes in six years as expectations for prolonged low interest rates fuel demand. The Fed’s third round of asset purchases is expected to keep borrowing costs low in Hong Kong, which tracks U.S. rate decisions because of the currency’s peg to the U.S. dollar.
Office rents in Singapore and Hong Kong fell 1.2 percent in the second quarter as companies cut back on expansion plans, Jones Lang said in its report.
In Australia, office demand will be weaker this year compared with last, because of slower economic growth and hiring, Jones Lang said.