Benett Theseira, head of real estate in the Asia-Pacific region at PwC, pointed out that the global rise in interest rates in the second half of 2022 triggered a major reset of real estate values, with different impacts on investors and lenders. However, with interest rates peaking and inflation starting to cool down, the market is finally seeing a turning point. The Asia-Pacific real estate market is expected to enter a recovery track in 2024, supported mainly by stable capital values and income returns. He mentioned that structural growth such as demographic changes, digital transformation, and decarbonization are continuously reshaping the demand for real estate in various sectors and regions. From a cyclical perspective, as the current market cycle and price corrections stabilize, the attractive entry prices and rental growth potential in some Asia-Pacific markets are appealing. In addition, corporate financing is shifting from traditional bank-dominated financing under strict regulations to private market financing, creating new opportunities for real estate debt investors. The Asia-Pacific market is diverse and one of the most resilient regions globally. The pace of recovery varies across different markets within the region, offering attractive investment opportunities. Looking ahead, rental growth will be a key driving force for market recovery, as the days of capitalization rate compression come to an end. However, the growth drivers in different major regions and sectors vary, leading to uneven recovery paces. Overall, a potential decline of about 30% in global real estate values is expected from peak to trough. The decline in Asia (excluding Japan) is relatively moderate, ranging between 10% and 20%, while Europe may face a decline of nearly 40%. In the Asia-Pacific market (excluding Japan), rising interest rates and expanding capitalization rates are putting pressure on asset pricing, particularly evident in places like Australia and South Korea, where these markets are expected to stabilize and improve over the next 12 months. Conversely, the prolonged low interest rate environment in Japan has supported real estate prices over the past two years and compressed capitalization rates. With a stable yield spread and a steady market, Japan remains an attractive investment market. However, the expectations of slightly higher borrowing costs may put pressure on the outlook for asset prices. For long-term investors, most Asia-Pacific markets are currently becoming attractive, offering cyclical opportunities in a low economic environment. Despite unfavorable factors facing the global office sector, the office markets in Sydney, Seoul, and Singapore have optimistic prospects, while investors should be cautious about the Japanese and Chinese markets. The revival of the tourism industry will bring favorable effects to the hotel sector and retail properties, especially in Tokyo and Osaka. Many institutional investors have seen opportunities in the market mismatch and rapid rise in interest rates over the past 12 to 18 months, and have diversified their portfolios through real estate debt allocations. Debt can provide downside protection and typically performs well in uncertain times, as seen in the current environment. Stricter banking regulations and lower leverage often present attractive market entry opportunities, while rising interest rates and loan spreads can lead to higher returns. The non-bank lending market in the Asia-Pacific region still lags behind the US and Europe, but is seeing accelerated growth due to the favorable factors of tightening loan standards in the recent term. Regulatory restrictions have raised capital requirements for bank loans, leading to increased buffer funds and more cautious handling of commercial real estate loans by banks, while non-bank lending institutions can provide financing for projects with funding needs. In the high-yield real estate bond sector, banks in most developed markets in Asia still have a competitive edge in lending, while the non-bank lending market in Australia is more attractive. Australian banks currently face pressure from regulators to reduce investments in real estate, especially in high-risk assets and projects, while the expansion of real estate loan pools further drives the trend towards non-bank lending. However, investors should still be cautious in their selections, especially in office and residential development projects, focusing on high-quality assets and well-managed projects that are likely to remain attractive to tenants and buyers throughout the entire cycle. Furthermore, Benett Theseira also pointed out that in recent years, private alternative assets including real estate and private credit have been growing the fastest among various asset classes. Private alternative assets traditionally belong to the institutional investment category, but are increasingly being sought after by private wealth investors as more investors turn to alternative assets for portfolio diversification and improved risk-adjusted returns. Investors looking to venture into industries with significant growth potential but high entry barriers, such as data centers, are especially interested. Non-institutional investors can only access such opportunities through real estate investment trust funds (REITs) or specific private funds managed by experienced active fund managers. Despite the major real estate value reset causing short-term challenges, the situation is about to turn for long-term investors seeking market entry opportunities. As the interest rate hike cycle comes to an end, investors may consider redeploying in line with long-term trends. In addition, to tackle ongoing market challenges and seize upcoming opportunities for recovery, building a diversified real estate investment portfolio with a mix of stocks and bonds can reduce volatility and improve risk-adjusted returns.