The Asia Property Bond Market is Powered by Stock Market Volatility.

 

Bond maturities are being postponed by Chinese developers, and debt is expected to peak in 2020.

As several interest rate cuts were recorded across the region, debt financing became more active while the equity funding market slowed, according to CBRE's second edition of Four Quadrants Asia Pacific, a report that provides a comparative review on the 'four quadrants' of private equity, public equity, private debt, and public debt. properties for sale

After a record-breaking year in 2015, when real estate businesses in Asia Pacific issued $55.7 billion in bonds, the strong pace continued in the first five months of 2016, when $24.2 billion was issued, accounting for 43 percent of the total for the year.

REIT fund raising (excluding IPOs) totaled $2 billion during the same time, a 23 percent decrease year over year, owing to stock market volatility at the start of the year. Closed-ended real estate fund raising in the private equity quadrant totaled $9 billion, up from $3.2 billion in the same period last year. However, two logistical developments in China and Japan, which garnered $3.5 billion in total, skewed the total amount raised.

"The debt market in Asia Pacific is overall showing increased activity, mainly due to further monetary easing from central banks, with six countries—Australia, India, Indonesia, Japan, New Zealand, and Taiwan—cutting their rates in the first five months of the year," Ada Choi, Senior Director, Research, CBRE Asia Pacific, said. "The active real estate bond market was primarily fueled by Japan's negative interest rate and China's onshore bond market opening. " Although the Japanese bond market increased by $3.2 billion over the review period, Chinese developers continue to be the largest source, accounting for over 70% of the total $24 billion in public bonds issued, largely in mainland China." Government bond yields in Japan have turned negative as a result of the Bank of Japan's negative interest rate policy, making bond offerings a more appealing fundraising method for investors. This increased bond-raising activity in the market, especially among J-REITs, who became more active in accessing funds from the bond market due to the low cost of capital. While in China, due to a weaker RMB and more lenient government licensing processes, Chinese developers became more active in the domestic bond market, issuing more onshore bonds than offshore bonds. When compared to offshore bonds, developers can get capital from the domestic bond market at a lower interest rate "Ms. Choi continued.

Nonetheless, recent bond default cases involving state-owned firms have harmed investor sentiment toward Chinese bonds. As a result, some developers have placed bond issue on hold, resulting in slower bond issuance for the remainder of the year. Chinese developers, on the other hand, are under less pressure to repay their debt in the near term because their loan maturity has been moved back to 2020, with around $28 billion expected to be settled by developers.