Financing will be Asia's single biggest issue in 2009, says ULI

Industry experts expect Asia's day of reckoning is just around the corner, and anticipate falling asset prices, deteriorating debt markets, increasing bankruptcies, and plummeting transaction volumes as the financial crisis travels the globe, according to the Emerging Trends in Real Estate Asia Pacific 2009 report, released this week by the Urban Land Institute (ULI) and PricewaterhouseCoopers.

The investing landscape has undergone a substantive and possibly permanent change, according to the report. Asian banks have re-rated real estate for risk, and with the re-pricing of debt, investors will demand higher yields. The days of financing property via highly leveraged borrowing appear to be gone.

'Asia shares the same liquidity crises that the balance of the world is facing,' said Stephen Blank, ULI Senior Resident Fellow for Finance. 'Financial institutions - whether international or national, regional or local - are reluctant to extend credit as de-leveraging reduces balance sheet lending capacity. While fundamentals in most markets and property sectors will be impacted by the prospects for a global recession, financing will be the single biggest issue facing the industry in 2009.'

The report - the third Asia Pacific edition of the Emerging Trends report - provides an outlook on Asia Pacific real estate investment and development trends, real estate finance and capital markets, and trends by property sector and metropolitan area. It is based on the opinions of internationally renowned real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants.

The report acknowledges that the 'credit squeeze became a chokehold' culminating in the near-paralysis of regional debt markets. The 'moment of truth' has yet to arrive in the Asia Pacific and refinancing may be the catalyst that brings the crisis home to regional real estate markets during 2009 and into 2010 as short-term and construction loans mature, the report states.

However, as one fund manager noted, 'Banks are being very accommodating because they know that if they start foreclosing on these rollovers, it’s just going to force values to fall further.' But the report cautions that the big risk for the entire industry is that the credit freeze will cause economies to seize up. Asian property sales plunged 68% in the third quarter of 2008 compared with 18% year-on-year through August, according to Real Capital Analytics.

To read a complete copy of Emerging Trends in Real Estate Asia Pacific 2009, click on this link