Markets & Prices
Last updated: Wednesday, March 29, 2017
Asian Property Market Keeps OverheatingPosted: Friday, November 25, 2016
The Asian property market remains an appealing destination for international investors and the investment value has kept going up in the past years. According to CBRE Vietnam, direct real estate investment in Asia by international investors increased from US$1.4 billion in 2009 to US$9.6 billion in 2015 and to nearly US$4.7 billion in the first half of 2016.
Over the past 18 months, Asia has registered a strong inflow of institutional capital, especially from the Middle East and North America. International institutions accounted for 57 per cent of total cross-border investment in direct commercial real estate in the first half of 2016, a significant increase from the 9 per cent in 2012.
Ms Ada Choi, Senior Director of Research, CBRE Asia Pacific, said, its strong long-term growth prospects mean that Asia will remain an important region for international investors. Most institutional investors outside the region are underweight with regards to the Asian market and over the long-term this will act as an incentive to continue investing in the Asian markets for greater geographic diversification.
Real estate funds remain a key route for international investors looking to enter Asian markets, she added. Several international fund managers have successfully raised capital for Asia-focused real estate funds. Such a high volume of capital raised over the past two and a half years - a total of US$22 billion - is expected to translate to solid investment demand in the region.
The appetite for Asian capital to invest outside of domestic markets has been steadily increasing since the global financial crisis. According to CBRE, approximately 80 per cent of Asian investors’ capital expenditure at the time of crisis was in domestic markets. This proportion has steadily declined in subsequent years, falling to 47 per cent in the first half of 2016.
The growth in real estate investment by Asian capital over the last three years is mainly due to the spending in overseas markets, both within Asia and outside the region. The main factors underpinning this trend include the strong increase in private wealth accumulation translating into investment demand amid the low deposit interest rate environment, as well as the deregulation of overseas real estate investment for Asian insurers.
Marc Giuffrida, Executive Director of Capital Markets, CBRE, said, “Investing globally has enabled many Asian-based investors to gain relatively better returns underpinned by stable, well-located assets and to geographically diversify their investment portfolios. In addition to Chinese, Korean and Taiwanese institutional investors active in recent years, Japanese investors have begun to explore the sector as many have little, or in some cases, no global real estate exposure.
Asian investors have now overtaken western investors as the major source of cross-border investment within the region. Amid the stronger competition from Asian capital and limited investable stocks available in Asia, international investors are advised to be more creative. There are now more factors for investors to consider, such as occupier requirements and the potential for asset enhancements. International investors looking to invest into Asia are recommended to be flexible in their investment strategies.
Core commercial assets such as prime office buildings remain the major focus for both Asian and international institutional investors supported by the ongoing growth of the service sector. “Build-to-core” continues to be a viable strategy for opportunistic and long-term inbound investors in Asia.
Tom Moffat, Executive Director, Capital Markets, CBRE Asia, said, opportunistic investors should look into markets with short-term weakness, for example the Singapore office and Hong Kong retail markets, in order to capture the upside resulting from the future recovery.
In the Japanese market, core or core-plus investors are seeking opportunities in secondary locations, for example Osaka and Fukuoka, on the back of intense competition in prime locations such as in Tokyo. The decentralised office sector in certain markets is also an opportunity due to the growing occupier demand for cost-saving moves. This will be a trend in major centres in Asia the coming time.