The research draws on valuation and income data for 3,363 assets in 135 investment portfolios with a total value of US$ 169.8 billion at the end of 2009.

According to the research, the unleveraged return on Asia property was -0.2% in 2009, combining an income return of 5.5% with a capital return of -5.4%.

These figures are the first that IPD has produced on a Pan-Asia basis and represent a significant step in improving the transparency of the Asia real estate market.  The headline total return is the weighted composite of the following total returns for the seven national markets included in the research:

• China 4.9%
• Hong Kong 15.4%
• Japan    -6.0%
• Korea    0.8%
• Malaysia 9.5%
• Singapore -1.5%
• Thailand 12.1%

There is a wide range of returns included in the Asia composite, ranging from -6.0% for Japan to 15.4% for Hong Kong.  The level of the composite is influenced more by Japan, because of its higher weight, than by Hong Kong, which has a much lower weight.

Of course, no real investor would ever receive the local currency composite because of the impact of exchange rates in getting their return back into their home currency.  When the currency effect is taken into account, the Asia composite return goes down slightly to -0.5% for the investor taking their return in US Dollars, but rises to a positive 2.2% for the Japanese Yen investor.

Over a three year period, the effects of currency are much more pronounced.  Over this period the total return from Asia property was 5.5% per annum on a local currency basis, -1.1% for the investor taking their return in Yen and 9.7% for the US Dollar investor. The three-year local currency return comprises an income return of 5.3% per annum and a capital return of 0.2% per annum.

Office property (which represents about 52% of the Asia databank) was the worst performing sector over both one year (-2.2%) and the last three years (5.1%), each on a local currency basis. Retail property was the best performer over both periods (5.1% and 10.0%), and industrial/logistic property returned 2.7% in 2009 and 7.0% per annum over the last three years. 

In an international perspective, the performance of Asia real estate would rank in the lower half of countries for which IPD publishes property returns in 2009, but is better than the -7.3% local currency return of the IPD Global Index.  Regardless of investor currency, the Asia composite return was lower than Pan-European composite but better than IPD’s market return for the United States.
 
                      Local    USD     JPY
Asia               -0.2%   -0.5%    2.2%
Europe            1.4%    7.1%  10.0%
United States -17.1% -17.1% -14.3%
 
However, it is important to note that the Asia returns are not strictly comparable with the other IPD index results.  Although IPD has employed its standard calculation methodology, some of the input data we have used in this research falls short of IPD’s usual standard. This is because we have combined data from our normal sources with other data (mainly from the Asia REITs), that has been derived from the public domain.  The latter cannot be verified at source and some assumptions have to be made to complete IPD’s core data fields.  Moreover, the coverage ratio of some countries is lower than we would normally allow for an index.  As a result, the Pan-Asia returns come with some important caveats and may be subject to revision in the future in the light of new and better data.

The largest component of IPD’s Asia databank is Japan (56%), followed by Hong Kong (19%), Singapore (14%), Korea (7%), China (2%), Malaysia (1%) and Thailand (1%).  These weights overstate our current best estimate of the Asia invested market in the case of Japan, Hong Kong and Singapore, and understate each of the other markets.  We have therefore reweighted the databank to 50%, 10%, 10%, 10%, 10%, 5% and 5% respectively.  These ‘stylised’ weights have the advantage of mirroring the target proportions of many international investors without over-stretching the parts of the databank with the lowest market coverage.

The returns published are up to 31 December 2009, but will be repeated for 2010 at a much earlier point in 2011.