Singapore ties with Hong Kong as Asia's most attractive property market

The city state beat nine cities as investors’ most favored location to buy and rent properties in a survey conducted by the Pan Pacific Star Group.

The biannual Asian Property Outlook and Strategy report released by the real estate investment company rated Hong Kong and Singapore as Tier I for the attractiveness of their office, retail and residential properties.

The rating is based on the cities' aggregate scores across key property drivers, which include economic outlook, demographics, socio-political stability, ease of doing business, transparency, vacancies, financing environment and timing in rental cycles.

Included in the study were also Bangkok, Beijing, Delhi, Ho Chi Minh, Kuala Lumpur, Mumbai, Seoul, Shanghai and Tokyo.

Explaining the methodology, Pacific Star said, “We banded the markets into three tiers: Tier 1 for ‘extremely attractive’, Tier II for ‘attractive’ and Tier III for ‘less attractive’. We arrived at the banding by considering a host of factors and not just expected returns."

The real estate investment company said the returns that may exhibit an inverse relationship with attractiveness due to the standards employed in conducting the survey.

“Less attractive markets may present more opportunities to acquire mispriced assets, hence potentially higher total returns, while excessive competition in attractive markets could translate into potentially lower total returns. Ultimately, expected total returns may need adjustments according to perceived risks and the associated premiums required," it said.

Pacific Star said Hong Kong and Singapore demonstrated strong fundamentals in most of the property drivers. It expects total returns for both cities to be in the very low teens for retail, low teens for residential, and single digit for office properties over the next 12 months.

Elaborating on the office sector outlook for Singapore, Pacific Star added, "Financial sector tenants will continue to drive leasing demand in Singapore. In spite of the large supply pipeline, we expect vacancy rates to be lower than expected given strong pre-commitments. Strong upward pressure on office rents will persist.”

On retail property sectors in the two cities, Pacific Star said they will continue to be underpinned by strong employment prospects and improved tourism spending.

Singapore is drawing more visitors because of its integrated resorts launched this year while Hong Kong will see higher tourism receipts because of rise in visits by mainland Chinese.

Turning to residential real estate in the two economies, Pacific Star added that demand by global investors will remain strong, particularly from China and India’s rising wealthy class. The high level of affluence in these cities, coupled with low local borrowing costs, will continue to fuel residential demand in Singapore and Hong Kong.