US and European investment funds are ripe for harvesting, and investors are now looking to sow new seeds in Asia Investment funds are turning to China and Asian property in the hope of high returns after cashing in on gains in American and European real estate. Globally, institutional investors became more interested in property after the dotcom bubble burst four years ago, according to Morgan Stanley advisory director Peter Churchouse. 'There has been a huge push into institutional-grade real estate in the United States and in Europe as money switched out of equities into other instruments,' he said. Now some of those funds are cashing in on the gains made in European and US property in the past few years, and are looking to Asia for better returns. 'These guys planted a lot of seeds in North America and Europe a number of years ago. Those seeds are now ripe for harvesting,' said Mr Churchouse. 'They are looking at Asia as being the next place to sow seeds.' Allianz Dresdner's asset management chief executive in Hong Kong, Mark Konyn, said institutional investors were seeking more exposure to Asian property. 'Asian property has become more attractive as an investment class as part of the overall reflation theme,' said Mr Konyn. 'Institutional investors have increased exposure to property companies or property plays. Australian listed property trusts have begun to invest overseas, including in Asia.' For instance, the real estate investment arm of Dutch financial giant ING plans to double its Asian exposure by 2006 from today's US$500 million. ING Real Estate Investment Management - which manages US$40 billion globally - is also moving its regional headquarters from Singapore to Hong Kong. 'We have a relatively small-scale business here in the region. But it's the right time now to focus on Asia,' general manager George Jautze said. To kick-start its regional expansion plans, the company has offered Euro418 million (HK$3.9 billion) to acquire Rodamco Asia, a Rotterdam-based firm with extensive property investments across Asia, including China, Indonesia, Malaysia, the Philippines, Singapore, South Korea and Thailand. Japan is one of the hot markets in the region, where property can be acquired with potentially high rental yields, according to Mr Churchouse. Borrowing costs are also low and economic growth is helping property prices. 'Not only are you buying quite a high yield at a very low cost of funds, but you are also possibly buying a bit of capital appreciation as well,' he said. Robert Lie, regional manager of ING Real Estate's Southeast Asia arm, said Korea's office market was attractive, with yields of 8 per cent to 8.5 per cent and a vacancy rate of just 2 per cent to 3 per cent. 'You can't find the figures in other countries,' said Mr Lie, who will be the chief of Asia headquarters from August. ING Real Estate was interested in more exposure to China's vast underdeveloped market, 'but it will be in a very far future,' said Mr Jautze, adding that the pace of expansion would be slow. Richard Price, Asia Pacific general manager of ING Real Estate, said there were many investment opportunities in China but the market was not fully developed. 'I think the biggest challenge in China is its regulatory instability,' he said, referring to the central government's policy changes to improve business and the economic environment. ING Real Estate has invested in Shanghai Racquet Club and Apartments and, through its China Property Development fund, the Pacific Town development in Beijing. Mr Jautze said the company preferred mature markets rather than a quick invasion into China.
