Real Estate Yields In APAC More Appealing
Two key factors are impacting the values of APAC investments in general. The first is the COVID-19 recession, which should ease from now on. The second is interest rates, which have fallen to record lows. These factors have extended a long global bull market in government bonds, according to Colliers Research. Among core APAC investment markets, government bond yields range from effectively zero for Japan at the low end, through 0.8%-0.9% for Australia, New Zealand and Singapore, to 2.8% for China at the high end. Dividend yields on major equity markets are higher, ranging from around 1.9% for the US S&P 500 to an unusually high 4.9% for Singapore. However, dividend yields are at risk from the recession’s hit to profits. Compared to low or negative yields on government bonds and the possibility of falling dividend yields for equity markets, the yields offered by real estate assets in APAC markets look attractive. For instance, yields in the office sector in developed APAC markets range between 2.8% for prime grade Hong Kong offices at the low end and 5.8% for Auckland at the high end. Yields on Grade A office assets in emerging markets are higher, ranging up to about 9.0% for Indian cities. In India, at an average cap rate of 8.5% on office assets, there is spread of over 3% compared to 10-year government bond, which makes the investment attractive in commercial core stabilised assets. This gap has only widened in the past 3 months with consistent decrease on policy interest rates.
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