The ViewAsia’s private rented sector is ripe for development, but beware the political and regulatory pitfalls

Pandemic-driven changes to the way people live and work could make Asia’s build-to-rent sector an attractive choice

However, increased government scrutiny on corporate landlords means navigating the risks is a daunting challenge

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Tokyo’s skyline as seen from the World Trade Center. Tokyo is at the forefront of Asia’s property rental market, with build-to-rent transactions accounting for 14 per cent of all commercial property deals in the first three-quarters of 2021. Photo: AP

Published: 10:45am, 18 Jan 2022

Every year, the Asian Association for Investors in Non-Listed Real Estate Vehicles (Anrev) undertakes a survey on the views and preferences of leading institutional investors across the region. The findings of the 2019 poll revealed that the office sector was the most popular asset class, followed by the industrial and logistics market.

Fast forward three years, and the residential sector, which did not even figure in the top three most favoured asset classes in 2019, is now the second-most-popular type of real estate, according to the results of this year’s survey, published last Wednesday.

In a sign of the extent to which investors are willing to allocate more capital to the living sector, Tokyo’s residential market was the most popular among 10 city-sector combinations, with the housing markets of Osaka and Sydney ranked fifth and sixth respectively.

The findings attest to the growing appeal of the private rented sector, commonly referred to as multifamily in the United States and build to rent (BTR) in Britain. The Covid-19 pandemic has exposed and exacerbated vulnerabilities in the office and retail sectors, while accentuating the defensive attributes and stable returns of rental housing.

A confluence of factors – an acute shortage of decent and affordable housing in Asia, shifting societal attitudes to renting and regulatory changes designed to facilitate institutional investment in rental properties – have encouraged investors to allocate more capital to the residential sector as part of a diversification of real estate portfolios.

In Japan, whose rental market is far and away the most developed and widely traded in Asia, multifamily transactions made up 14 per cent of all commercial property deals in the first three-quarters of last year, data from JLL shows. Foreign investors have accounted for the bulk of investment activity over the past several years, putting the sector on track to become one of the world’s leading multifamily investment markets.