Asia Pacific property stocks lost ground in September as risk aversion gripped investors, ahead of a US presidential election and continued concerns that a global economic recovery remains volatile.
Investors went on the defensive, even as the region remains on a stronger footing. Markets in Asia, as tracked by the MSCI AC Asia Pacific Index posted the first decline since March, ending the month in the red, as anxiety over valuations soared.
The GPR/APREA Composite Listed Real Estate Index fell 2.3%, underperforming the wider market. Regional heavyweights China and Hong Kong both retreated by more than 3% as debt concerns and increasing government scrutiny weighed on developer stocks.
To tackle unbridled borrowing in the sector, China has proposed caps on debt ratios. Dubbed ‘the three red lines’, Chinese regulators outlined limits for a company’s debt-to-cash, debt-to-assets and debt-to-equity ratios. While no official announcement was made, market watchers expect the rules to kick in by early 2021.
The pullback in equity markets was not lost on the region’s REITs. The GPR/APREA Composite REIT Index lost 1.4% in September, snapping a string of monthly gains since April, underperforming the wider market, which declined by a smaller 1.1%. A broad-based fall was recorded across most sectors, with only the hotel and healthcare sectors posting positive returns. Residential REITs contracted by the most, due largely to the pullback in Japan.