International Property

Franklin Templeton focused on China, Hong Kong property sectors

Company targets well-capitalised, sound developers with significant exposure to tier-1 cities

PUBLISHED : Tuesday, 04 October, 2016, 3:06pm
UPDATED : Tuesday, 04 October, 2016, 7:39pm

Franklin Templeton Investments, one of the world’s largest asset management groups, is to focus its Asia real estate investments on the China and Hong Kong residential sectors, optimistic the region’s long-term housing demand will remain strong, despite the slowing economy.

Wilson Magee, director of Franklin’s global real estate and infrastructure securities, described China’s residential sector as on a rising tide.

“We are interested in well-capitalised, sound developers who have significant exposure to tier-1 cities,” he said.

But he stressed the market is still immature, and conditions vary from city to city.

“Clearly there is tremendous supply in some tier-3 and tier-4 cities, so you need to pay attention to particular supply-demand trends.

Clearly there is tremendous supply in some tier-3 and tier-4 cities, so you need to pay attention to particular supply-demand trends... you have to pick your spots
Wilson Magee, director, Franklin’s global real estate and infrastructure securities

“You can’t look at China as one place to invest to be successful, you have to pick your spots,” said Magee, who manages US$1 billion of global real-estate securities.

He added his portfolio is also looking to the Singapore and Hong Kong residential markets, which have been gradually recovering after recent declines, although he is more cautious in the former as supply in greater, while Hong Kong is structurally under-supplied.

Home prices in Hong Kong dropped more than 10 per cent from their September 2015 peak in the first half, government data shows.

“The high pay level, very low tax policy, and the physical constraints of adding a lot more supply in Hong Kong, mean long-term demand is much bigger than supply to come,” added Magee.

But he said the pricing of some of Hong Kong’s office assets remains overvalued as their estimated annual returns are below 2 per cent.

Although many continue to worry what impact an US interest rate increase might have on the local property market, Magee says there is no need for investors to panic.

“We expect to see economic growth in the US, and that would benefit the property market.

“We see top line growth compensating some any increases in rates,” he said. “The world will be healthier if rates were higher.”