Sovereign wealth funds step up their property investments in Asia-Pacific

HK hotels deal by Abu Dhabi Investment Authority highlights appetite for trophy assets

PUBLISHED : Wednesday, 13 May, 2015, 2:18am
UPDATED : Wednesday, 13 May, 2015, 8:52am

Sovereign wealth funds are stepping up their property investments to diversify their focus from listed equity assets.

Even though mainland China is an important market for the sovereign funds, they often still prefer developed markets for long-term returns.

"Obviously China is an important market for sovereign wealth funds but many of them, particularly the new entries to this region, would prefer more mature markets like Japan and Australia," said Ada Choi, senior director at CBRE Research, Asia Pacific.

"Hong Kong and Singapore are in the spotlight too but I think that activity will be driven by opportunities to access such prime properties," said Choi.

She said the funds are entering new markets by purchasing big ticket trophy assets, citing the recent acquisition of a number of Hong Kong hotels by the Abu Dhabi Investment Authority (ADIA) as an example.

On April 30, Hong Kong-listed New World Development (NWD) announced that the company and its controlling shareholder, Chow Tai Fook Enterprises, entered into an agreement with ADIA, one of the world's largest sovereign wealth funds, to establish a new joint venture company to own the Grand Hyatt Hong Kong and Renaissance Harbour View in Wan Chai and Hyatt Regency in Tsim Sha Tsui.

The total consideration for the sale and transfer of the hotels was HK$18.5 billion, of which HK$10.082 billion was received by NWD.

This is the industry's biggest deal in Asia.

"It is a breakthrough deal for ADIA as it marks its first entry to the hotel market in Asia, excluding Japan and Australia," said Joanne Lee, senior manager, research and advisory, at Colliers International.

After the completion of the deal, ADIA will own a 50 per cent stake in the three hotels, via the joint venture, with NWD's stake reduced to about 23 per cent and Chow Tai Fook's to 18 per cent.

Qatar came late to the sovereign wealth fund party, launching the Qatar Investment Authority only 10 years ago. The fund grew rapidly and it has become one of the biggest property investors in London and Paris, said Lee.

"Asian and Hong Kong real estate has been absorbing a seemingly endless stream of new money arriving from a variety of sources, both outside Asia and within. This includes wealth funds, reits and accumulated high-net-worth money from across the region. This explains the expensive property prices in Hong Kong despite all the government's cooling measures," she said.

Norway's 25-year-old oil fund, the Government Pension Fund Global, the biggest sovereign fund in the world, is also looking to diversify from its mandated focus on listed equities into assets such as property.

Norges Bank Investment Management, the fund's manager, is building its expertise in property as it seeks to raise its allocation to that sector to 5 per cent by 2016, according to Lee.

Choi said the wealth funds are long-term money and do not focus too much on yields, which are quite low across Asia. Generally they prefer office space, she added.

Other major sovereign wealth fund deals include GIC buying Pacific Century Place Marunouchi in Tokyo for US$1.42 billion last year. It also bought a 49 per cent stake in the Future Datacom building in New Zealand for US$32 million early this year.

ADIA bought the State Tower Namsan building in Seoul's Myeongdong district for US$461 million in the fourth quarter of last year.

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