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Fed move good news for Asian realty: CBRE

THE US Federal Reserve's announcement that it will start cutting monthly purchases of mortgage-backed and Treasury securities to US$75 billion (Bt2.5 trillion) from $85 billion next month is likely to be positive for the Asian real-estate market, according to CBRE.

Since midyear when the Fed said it might begin tapering at some point in 2013, the market has been fretting about when and how fast tapering might come, making decisions difficult.

However, the recent announcement can be perceived as business-friendly, as it clarifies that the rate and extent of tapering will be moderate. It provides clarity around the Fed's policy stance, highlights better economic prospects and frees up corporate decision-makers to implement plans for the coming year.

CBRE maintains the view that the Asia-Pacific region will be the primary focus for global corporate expansion because of comparatively robust fundamentals of steady urbanisation, rising wealth and favourable demographics.

Overall, the clarity on the Fed's direction will allow firms to make decisions that may have been on hold for the past few months. This is expected to play out particularly in Asia and eventually provide support to the rental market as firms seek to grow. There will be around a six-to-12-month lag before we see the impact on rentals from the improvement in business sentiment.

For capital markets, since bond yields have reacted mildly to the tapering plan and the US central bank expects to keep the Fed Funds Rate at zero for the foreseeable future, global interest rates are expected to stay low and future increases will likely be gradual and cautiously tied to the pace of recovery.

Investors will remain keen on yield-accretive investment vehicles, which is positive for commercial real estate. They will also increasingly move up the risk spectrum in search for higher returns and shift their focus to secondary assets and non-gateway cities, as yields on core assets in many parts of the world have compressed significantly.

Over the longer term the expectation is that US interest rates' rise will normalise, and this could exert upward pressure on interest rates for markets such as Hong Kong and Singapore that rely heavily on foreign trade and have no capital-flow restrictions - ultimately pushing up yield and return expectations on real-estate investments.

Property valuations in Asia could potentially be hit by rising cap rates, but if improving fundamentals feed through into rising rents, this will partly offset the impact on property prices.

However, given the likely extension of the Fed's zero rate, in Asia it appears that excess liquidity will continue to be the dominating factor in determining asset prices, at least in the coming 12 months. Property yields are likely to remain low over this time frame.


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