Investors flock to Japan for best property deals

Hong Kong property values remain high, while home prices in Tokyo are still less than half their peak at the height of the economic bubble

PUBLISHED : Wednesday, 07 August, 2013, 12:00am
UPDATED : Wednesday, 07 August, 2013, 3:44am

Global property investors are turning their attention from Hong Kong - where the government has rolled out restrictive measures to curb investment demand - to offshore markets ranging from Japan to Vietnam.

While they remain positive about the long-term market outlook in China, including, Hong Kong, British property investment company Grosvenor and New York-based investment fund Angelo, Gordon & Co, say they are actively looking for buying opportunities in Japan.

Investment fund Gaw Capital Partners singled out Vietnam as an option.

"At the moment, we think Tokyo presents the best market in terms of timing and opportunity in pricing," said Nicholas Loup, chief executive at Grosvenor Asia Pacific.

Grosvenor, which manages £12.2 billion (HK$145 billion) of assets, is to launch its first Grosvenor Development Partnership to invest in the high-end residential and office markets in mainland China and in Japan, as well as in Hong Kong, through seeking partnerships with institutional investors or local developers.

Grosvenor will invest up to US$300 million in the venture.

By forming 50-50 joint ventures Grosvenor could potentially double the size of the investment vehicles, said Loup, who anticipates tie-ups with two to three partners to invest in four to six projects with a total investment of between US$700 million to US$800 million.

Hong Kong property prices remained high, he said, while residential prices in Tokyo were still less than half the peak levels reached at the height of the bubble economy in the1980s. The development partnerships set up by Grosvenor would also target old grade-B office buildings in Tokyo and refurbish them with modern facilities in a bid to enhance their commercial value.

"In Japan, people are inclining to modern buildings after the earthquake in that country," he said, and this was reflected in a growing demand for upgrading old office buildings.

In the first half of this year investors spent US$10.6 billion buying commercial properties in Japan, up 50 per cent from a year ago, according to property consultancy Jones Lang LaSalle. The value of transactions for commercial properties in Hong Kong fell 2 per cent to US$4.8 billion, but in Shanghai the value rose by 22.5 per cent, to US$3.8 billion.

"Much of the growth in Asia- Pacific is being generated in Japan, which is seeing a renaissance in transactional activity after many years of below par performance," said Jones Lang LaSalle.

Investors are turning to Japan as the city's office properties offer investment yields of 5 to 5.5 per cent a year, compared with 3 to 4 per cent in Hong Kong, Shanghai and Beijing.

Grosvenor aimed to get one or two deals done in Tokyo shortly after launching its Development Partnership next month, he said, and the partnerships would also look for opportunities in Hong Kong and mainland China.

In Hong Kong the prospect of rising interest rates and additional property taxes could cause home prices to fall in the short term, said Loup.

"At the moment, although residential prices are relatively high, we will look for exceptional opportunities in Hong Kong.

"Generally, we expect prices will show an adjustment in the relatively short term, but given the strong fundamentals of the Hong Kong property market, the adjustment process will not be too drastic or too long," he said.

In Hong Kong, Grosvenor currently owns a 50 per cent stake in PCCW Tower in partnership with Swire, and is in a partnership with Couture Homes and Asia Standard International to redevelop Monterey Court on Jardine's Lookout into a super-luxury project.

Wilson Leung, managing director at Angelo, Gordon Asia, said the fund was active in Japan and Korea as well as in mainland China and in Hong Kong.

"We think the real estate fundamentals in Japan are very attractive at the moment as they have yet to make a full recovery. There are other external market factors such as a depreciating yen, low borrowing costs, a rising J-REIT market, and possible economic growth which will benefit investors in this market," he said.

Gaw Capital Partners co-founder Goodwin Gaw said outside of China, Vietnam was an attractive market.

"Vietnam is benefiting from the closure and relocation of Chinese factories due to increased labour costs, which are forcing factories to seek lower-cost labour elsewhere," he said.