The value of investment deals in Asian property fell sharply year-on-year fall in the second quarter of 2020, just as it did in the first – but that trend is masking huge divergence between regional markets.

Deal value nearly doubled in mainland China in the April-to-June period, whereas it plunged in Hong Kong, Korea and Singapore, according to Real Capital Analytics (RCA). This took place against the backdrop of the coronavirus pandemic and rising US-China tensions. 

The value of real estate transactions in Asia Pacific dropped 37% in the second quarter to $211 billion compared to the same period last year, following a 38% fall in the first, by RCA figures.

Investors have been reluctant to buy in Asia’s main property markets, which have so far seen only small price falls in key areas such as commercial buildings since Covid-19 took hold early this year, Roddy Allan, chief research officer for Asia Pacific at property services firm JLL, told AsianInvestor.

“Investors have remained patient waiting for the right opportunities to come along before committing to new capital deployments,” he said. “Owners, in general, are not facing significant financial distress.”

China’s real estate market was Asia's strongest performer, with transaction volume leaping 95% in the second quarter, bringing the total for the first half of the year to $14 billion. Turbulent Hong Kong saw the lowest volume, with values collapsing by 80%, leaving its total for the first half at $2.3 billion. That was followed by Singapore, which was down 67%, and Korea, which fell 50% to $8.1 billion.


James MacDonald, Savills

“China got on top of the virus early, and office occupancies are now close to pre-crisis levels,” James MacDonald, head of China research at property broker Savills in Shanghai, told AsianInvestor.

The size of the year-on-year increase in China in the second quarter was partly down to a low baseline, said David Green-Morgan, Singapore-based head of Asia Pacific at RCA. The second quarter of 2019 was relatively weak in China, following record deal values in several cities, including Beijing, in the first quarter 2019. 

In the second quarter, year-on-year occupancy levels fell just 0.4% in Beijing and 0.5% in Shanghai, Green-Morgan noted, with commercial tenants once again renewing leases as company staff returned to their places of work.

Long-term investors such as sovereign wealth funds have been more active than fund managers, he said. On August 3, Singapore’s GIC and real estate fund manager AEW bought a Beijing office building for less than Rmb3 billion ($432.51 million), reportedly 10% below the initial asking price . And in February, GIC bought the LG twin tower in Beijing for Rmb8.8 billion.

China’s property market has been driven by domestic capital this year, whereas last year “was very much a foreign investor story”, noted Green-Morgan. He pointed to the country’s closed borders and the widespread travel bans in place around the world.

“Investors with people on the ground, like GIC, have been able to operate,” he added, “but the majority of buyers have been Chinese groups.”

However, price discounts like that seen in the GIC-AEW deal are exceptional, said Savills’ MacDonald, with government economic stimulus having supported demand for and prices of office and residential markets. As a result international property funds have generally found China’s market insufficiently appealing this year.

MacDonald argued that office rental rates offered a better guide to valuations, as sale prices could be biased by a few large transactions. Rents for grade-A offices in Beijing fell 0.9% in the second quarter,  in Shanghai by 4% and in Guangzhou by 1.5%, according to Savills.

There are some distressed opportunities among developers that have seen government finance dwindle over the last two years, said Stuart Mercier, Shanghai-based head of China at Brookfield Asset Management.

“The process to de-risk or de-lever balance sheets in the [property] sector dates back 18 to 24 months,” he told AsianInvestor.


Outside mainland China, Hong Kong saw the steepest fall in property investment volumes of all Asian countries.

Ariel Shtarkman, a managing director of family office property investment platform Atom Assets, told AsianInvestor that she, like others, was staying on the sidelines given the economic uncertainty and the few discounts on offer.

Ariel Shtarkman,
Atom Assets

“People are permanently delaying decisions,” she said. “I’ve seen quite a few deals since February [but] it is very hard for me to press the trigger.”

Shtarkman anticipates further drops in valuations in both Hong Kong’s direct property sector and property technology, but declined to put a figure on the potential falls.

Similarly, investment volumes have halved in the second quarter in the domestically dominated market of Korea, despite it being one of the few economies to have avoided a lockdown. The lack of deal flow is because much local real estate is in the hands of well capitalised and large institutional investors.

“It takes more than a pandemic to correct the valuations in the Korean real estate market,” said Spencer Park, a counsel at law firm Dechert in Hong Kong.

Local asset owners have had to maintain local property positions after travel restrictions put paid to offshore forays. Korean investors snapped up $12.5 billion of assets in core European cities in 2019, making them Asia’s most prolific buyers, according to RCA. But Park said he had not seen any deals in the past quarter.

It’s similar in Singapore: well-capitalised property owners have little incentive to sell at a discount, hence the two-thirds drop in volume in the second quarter.

Rents for office space in central Singapore rose 12.5% between the third quarter 2017 and their peak in the second quarter of 2019, according to government figures. Since then they have fallen 4.6%. 

Shtarkman is wary of the Singapore real estate market. “No one knows what a good deal looks like – is it [a discount of] 5% or 10%? And no one wants to be the first [seller] to cut their prices.”

This article was updated to clarify Spencer Park's job title.