_Changing landscapes of residential development strategy in Asia-Pacific

Analysing the deals done over the last ten years, we see that developers have been acquiring more expensive, less prime and smaller sites. Both the average quantum price and price per sq ft have grown gradually on a CAGR basis – increasing 4.7% per year from US$154 million to US$242 million and 15.9% per year from US$47 to US$208 per sq ft.

For land size, the acquired sites now have much smaller land area – averaging 32 acres today compared to 65 acres 10 years ago. Likewise, the percentage of acquired sites that are in a CBD area has dropped tremendously – from about a fifth in 2007 to just 6.0% in 2016.

This trend can be attributed to a couple of factors: limited supply of big, prime sites and the increasing understanding of the local residential market. Usually, first-time entrants prefer to build a bespoke development as a statement making landmark in a central location. As they obtain deeper foothold in the market, it is not unusual for them to build houses in secondary locations.

In Q1 2017, we continue to see more crossborder investment activities in Asia-Pacific – with close to US$10 billion representing 15.2% of the total sales volume. In addition, this is also the highest Q1 figure ever recorded since at least 2007. Three of the top five deals transacted in Hong Kong were all purchased by Chinese developers; the rest of the top ten deals were in mainland China.

In addition to increasingly tightly controlled Chinese outbound activity, the residential development sector may have to compete for funds with other alternative investment-grade real estate classes such as logistics and hospitality. Given the growing uncertainties in the world, Asia-Pacific developers may also choose to invest in selected hot spots in mature economies such as Kyoto in Japan, suburbs near major cities in Australia and city fringe in Singapore.

Get more insights on Asia-Pacific Residential Review May 2017