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Asian investment property market turns down

The unprecedented events of the past six months have eroded investor, occupier, consumer and overall business confidence, resulting in falling property prices and reduced investment activity, along with declining retail spending and external trade across the region, according to CB Richard Ellis' Asia Investment MarketView Report for the second half of 2008.

With banks adopting a conservative approach towards lending for property acquisition, the Asian investment market suffered from record low investment volume in the July – December period as prospective buyers delayed acquisitions until the market shows signs of stabilizing. Investors and lenders re-assessed their appetite for risk as raising capital proved to be an increasingly difficult task amid a widespread correction in property prices.

While valuations in Thailand have not fallen at the rate seen in other Asian markets, few transactions were concluded during this period, as buyers and sellers opted to remain on the sidelines in view of global financial worries and local political uncertainty. The period saw buyer and seller expectations widen with many purchasers hoping for distressed assets to come onto the market and sellers unwilling to drop prices below a certain level.

"In recent weeks, we have seen an increasing availability of land for sale within Bangkok's CBD. Some investors are freeing up cash as they expect other property assets, including revenue-generating buildings, to come onto the market in the coming months," states Ms. Kulwadee Sawangsri, Director of Investment & Land Services at CB Richard Ellis Thailand. "It appears that land prices peaked in 2008, and landowners who do not plan to develop their land in the near future are now considering selling those plots."

"The situation in Thailand is very different to many other Asian countries, and cannot be compared to the difficulties we faced in 1997. The debt levels on existing, completed buildings are much lower this time. In the office and retail sectors, there is limited future supply under construction."

Things were worse in Singapore, where the S$3.93 billion investment volume recorded during the review period brought the 2008 total to just S$17.84 billion, 70% down on the S$54.02 billion recorded in 2007. In Japan, a number of institutional funds aborted planned property acquisitions as the credit crunch compelled many developers to consolidate while a rising number of real estate firms were forced to seek bankruptcy protection.

Investor confidence in Hong Kong was shaken by the escalation of the global financial turmoil with potential purchasers displaying a cautionary attitude towards buying property as worries over potential layoffs and bankruptcies dominated the headlines. The investment market in China suffered from dampened investor sentiment, prolonged negotiations, aborted deals and reduced prices during the second half of the year as the Chinese economy slowed.

In South Korea, there were a number of transactions involving office buildings as foreign investors exited the local real estate market. Investor sentiment and business confidence has deteriorated significantly, and the stock of commercial property available for sale has increased as institutional investors offload real estate from their portfolios in order to shore-up liquidity.