Taiwan commercial deals break record

PUBLISHED : Wednesday, 14 November, 2007, 12:00am
UPDATED : Wednesday, 14 November, 2007, 12:00am

Taipei's commercial property investment deals have hit all-time record levels so far this year as foreign investment funds and local firms aggressively pursue property acquisitions in the sector in search of capital gains.

According to research by property consultancy DTZ, a total of 50 en-bloc commercial property transactions were done in Taiwan in the 10 months to October, collectively valued at about NT$75 billion (HK$1.81 billion).

The year-to-date deal value is almost equal to total transaction volume in the sector of NT$79 billion over the last two years combined.

Savills Taiwan general manager Cynthia Chu Hsingerh said that commercial property deals since the beginning of the year reached a total transaction value of NT$95 billion which is a record high.

By the end of the year, she expects the value will reach NT$120 billion. 'Property prices in nearby cities in Asia such as Hong Kong and Singapore have risen significantly in the last few years,' said Billy Yen Pingli, general manager at DTZ in Taipei. 'But prices and rents in Taiwan were stable over that period.'

Mr Yen said that since Taiwan's market had trailed growth in the region, foreign investment funds and local buyers had begun hunting for value in the island.

Mainland properties in particular had enjoyed the attention of foreign investors for the past two years, said Mr Yen, but since the government began announcing measures to slow demand and the rate of price rises - and more measures were expected - foreign investors had begun to look elsewhere.

Savills' Ms Chu agreed with this view. 'Foreign investors have entered Taiwan's property market to diversify their investments in Asia,' she said, estimating that foreign institutions were responsible for about 35 per cent of the total commercial property deals done in Taiwan in the first 10 months, compared with a 30 per cent share done last year.

Mr Yen expected 45 per cent of deals in the commercial investment market in Taiwan would be done by foreign investors next year, with US-based funds and institutions likely to figure among the most aggressive buyers - among them institutions such as ING and AIG.

Ms Chu said under Taiwan regulations, local insurance companies were not allowed to invest more than 35 per cent of insurance premiums they collected outside Taiwan.

That means a major portion of premiums are invested in Taiwan.

'Our company has insurance business in Taiwan and has to follow regulations,' a source at a foreign investment fund said. 'It encourages us to invest in the local property market.'

Based on current deals, the institutions are inclined to fulfil their obligations on domestic investment by buying office properties for yield, since they are easier to manage.

Prospects for ongoing investment yields were sound, said analysts. Although the vacancy rate for offices in Taipei was down to 8 per cent, new office supply in the pipeline is limited. DTZ forecasts a total area of 2.31 million square feet will be built in the next three years but believes little more than one-third of this supply will find its way into the leasing market, with the rest retained for own use. Meanwhile, demand for new office space remains strong.

'The average annual take-up rate in the office leasing market averaged 1.11 million square feet over the last three years,' said DTZ's Mr Yen.

Based on current supply projections, that take-up rate would outstrip the new space coming on to the market in the next two years and push prices up by 20 to 30 per cent next year, while rents could rise by 10 to 15 per cent, he said.

Savills' Cynthia Chu was positive about the sector, but less bullish.

'Office prices and rents have jumped 25 and 15 per cent, respectively, so far this year,' she said. 'They are likely to rise a further 5 per cent or less next year.'