Unlocking Real Estate Potential in Emerging Asia

Callum Bothwell
Real estate markets in Asia have remained strong in the last 12 months. Investors and developers are focused on delivering the best possible returns for their investors.

Real estate owners, users, lenders and investors are confronted by such diverse factors as complex infrastructure requirements, environmental regulations, a myriad of compliance related issues, local market considerations, political and geographic risk, portfolio risk, changing capital markets, building design technologies, planning and construction requirements, as well as fluctuating costs and market absorption rates. Any one of these factors can significantly impact overall investment performance.

The speed of urbanisation across much of emerging Asia has led to an increase in the development of masterplanned communities. China, India, Sri Lanka, Malaysia, Thailand, Indonesia and the Philippines are turning to this approach. Masterplans address the complex issues that affect towns, cities and neighbourhoods, responding to a wide range of local social, economic and environmental issues.

The development of masterplanned communities brings significant commercial questions. Developers are under pressure to deliver maximum returns, with each asset required to earn its keep. When forecasting community needs, additional business elements will ideally be embedded within the development mix, to generate further revenue streams. Residential components will benefit from community shopping and healthcare facilities, for example, and these can be branded, franchised and rolled out in other locations.

Masterplans address the complex issues that affect towns, cities and neighbourhoods, responding to a wide range of local social, economic and environmental issues.

Development phasing has become increasingly important to investment returns. Masterplanned communities are often delivered in phases as a result of funding constraints and geopolitical drivers, and to progressively respond to market sales. Development sales strategies can be modelled in detail, determining the components that should be completed first. These components will generate early sales income that can fund subsequent phases.

The same phasing approach applies to infrastructure, including transportation, water supply and treatment, energy, and district cooling. The capital and lifecycle operating cost of infrastructure is a significant driver for investment returns, and it may not be economically efficient to construct it during the first phase.

Careful planning and design are needed to ensure that the infrastructure fits the development budget and the return on investment criteria. Intelligent traffic forecasting and modelling will support efficient transportation planning, connecting retail, commercial and industrial nodes that generate income.

The capital and lifecycle operating cost of infrastructure is a significant driver for investment returns...

Masterplan community developers are also looking for innovative ways to raise additional funding for infrastructure. For example, plot developers may be permitted to develop individual building sites in accordance with the masterplan requirements. The plot developers contribute to both capital and lifecycle costs of the power, water and district cooling infrastructure, thereby improving returns for the masterplan developer.

Securing the best return on investment poses similar challenges throughout emerging Asia's real estate sector. Real estate funds focused on building ownership, and asset management are looking for best value for their acquisitions. There is also increased appetite for renovation and change of use projects, releasing the potential of underutilised quality buildings to generate improved income streams for their owners.

Examples include changing commercial buildings into residential developments, industrial buildings into warehousing/logistics facilities, and industrial facilities into colocation data centres. Some developers are upgrading commercial buildings with the facade, public area and mechanical & electrical infrastructure refurbishments. They may also improve the asset quality by providing on-site data centre facilities, now an increasingly important requirement for financial sector tenants.

There is also increased appetite for renovation and change of use projects, releasing the potential of underutilised quality buildings to generate improved income streams for their owners.

Faithful+Gould's development advisory services offers comprehensive support to private sector and public sector real estate developers and funds. We are currently supporting several master-planning community schemes. We inform clients' decision-making, resulting in developments that are strategically planned, designed, phased and delivered to maximise returns.

Elsewhere, we are helping clients explore and understand the technical possibilities and economic models associated with a change of building use. We lead multi-disciplinary teams to advise our clients on regulatory approvals, planning, cost, design, procurement, construction, commissioning and facilities operation.

Through our integrated project and programme management approach, we provide a suite of services, including advisory services, program and project management, cost and commercial management, construction management and asset management. In collaboration with our parent company Atkins, we bring an excellent understanding of business case planning, programme management, urban planning, design and engineering to our clients' development planning.

Written by

Callum Bothwell Managing Director - Asia Pacific Contact me View my profile >