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Asia real estate less volatile in US sub-prime crisis
At the heart of the US sub-prime crisis is the ‘securitisation’ of inferior US housing loans. Given high interest rates of 8-9 per cent per annum, or even higher, these so-called CDOs (collateralised debt obligations), were snapped up by many institutional as well as individual investors, including big hedge funds.
However, many of the sub-prime mortgage borrowers, mostly lower middle-class and poor Americans, later started to default on their loan payments due to their low creditworthiness. Holders of these CDOs, which have a maturity of 5-10 years, decided to rush to get out of the market for fear of losing more money amid the increasing rate of home foreclosures.
In short, the crisis has spread from the US mortgage market to the US capital market, after which the US financial sector could be hit. This could be followed by a hit on the real sector of the US economy and, later on, the world economy.
The overall damage of this sub-prime crisis is estimated to top US$500 billion, of which only about US$200 billion has been observed so far. It seems the US authorities have acted too late in dealing with this, as strong measures should have been taken as early as two years ago.
But what is the effect on Asia? According to a recent report from John Su, Director of Investment Strategy in Asia for Goodman Property Investors: "Asian real markets continue to perform well and there are few signs that they have been adversely affected by the recent turmoil in the US credit market. On the contrary, some investors may see Asian property assets as less volatile than the stock market and therefore a more attractive asset class.
"Institutional investors are certainly becoming more attracted to Asian real estate. In part this is a natural extension to the trend of investing outside domestic markets which we have witnessed in the last few years. Once investors have become confident investing overseas there is no reason why they would restrict this to just Europe. In addition, as the UK property market continues to fall and the Eurozone market begins to slow, many investors are looking further a field to diversify their portfolios."
Many American and other International investors are now looking at Asia with it's fairly stable currencies and strong growth to invest particularly in the property sector.This will tend to further pull on the American economy and further make investments into the Asian region ever stronger.
Favorite investments include R.E.I.T.S and properties that are in popular resort areas. This rings true for Institutional, hotel chains and individual investors.
Currently a number of Asian countries are extending their leasing and visa options to take advantage of this trend, countries of note include Vietnam, Thailand, Malaysia and India.
