Investors look to Asia-Pacific for cross-border ventures

More investors are looking to the region for cross-border ventures, writes Mukul Munish

PUBLISHED : Wednesday, 28 May, 2014, 5:08am
UPDATED : Wednesday, 28 May, 2014, 5:08am

Property investors are a strange breed when it comes to making decisions to invest in overseas real estate. They are driven by economic sentiments and how a country's economic barometer is for the year ahead.

International real estate agents who market overseas properties are always pointing to the political and economic stability of a county when they market high-end projects to high-net-worth investors.

Recently, CBRE released a survey that gauged the mood of international investors' intentions for this year.

The survey unveiled the results of its Asia-Pacific Investor Intentions Survey 2014, which gauges the appetite and outlook of Asia-Pacific real estate investors for the rest of the year. A significant majority of investors expect to commit more capital to the Asia-Pacific real estate market this year compared to last year.

CBRE's survey showed that a total real estate investment turnover in Asia-Pacific for last year reached US$90.4 billion, a rise of 24 per cent year-on-year and the highest figure recorded since CBRE began collecting data in 2005. Despite the record total reached last year, and various concerns ranging from high pricing to slower economic growth, a majority of respondents indicated that they will continue to commit more capital to the Asia-Pacific real estate market, with 64 per cent expecting their purchasing activity to be higher than in 2013.

However, the survey showed that investors were not without concerns. Respondents identified economic slowdown or weakness as the biggest concern around property investing in 2014 (23 per cent), along with the perception that property has become overpriced (21 per cent) and the effects of United States tapering and rising interest rates (17 per cent).

Greg Penn, managing director, Capital Markets Asia for CBRE, says despite this, investors generally retained a positive outlook towards the region's longer-term prospects.

"Investors are not just planning to commit more capital to the region, they are looking to commit substantially more. The attractiveness of [the] region persists as a result of growth levels that remain higher than global averages, long-term demand for quality commercial property and rapid urbanisation," Penn says.

Asia retained a lot of appeal for investors, with Emerging Asia and Developed Asia topping the list of preferred regions to invest in globally, and with 23 per cent of investors saying they targeted each. There was also strong interest in investing in North America and Western Europe as recovery in the West takes hold, with 20 per cent and 16 per cent of investors interested in these markets, respectively.

The office sector was identified as the most popular sector for investment (32 per cent) followed by industrial and logistics (29 per cent) and residential (21 per cent). The strong interest in industrial and logistics assets is driven by the comparatively better yields in the sector and strong demand for modern logistic facilities across the region.

However, there are continuing challenges around sourcing investable assets and land acquisitions. The interest in residential assets is supported by the continuing wave of urbanisation in the region. Meanwhile, interest in retail assets cooled somewhat from previous years in part because of the challenges of sourcing investable assets, and pricing.

Within Asia-Pacific, China is the preferred destination for cross-border investors - excluding respondents selecting their own market of domicile - followed by Australia and Japan. Meanwhile, Australian industrial and logistics, Australian offices, China industrial and logistics, Japan offices and Australian retail were identified as the most attractive country sectors for investment, according to CBRE.

In Hong Kong, investment appetite from cross-border investors appeared weak, as they continued to be affected by double stamp duty measures and persistent high pricing.

Ada Choi, director of CBRE Research Asia, says that although some vendors have softened their stance on asking prices, there is limited pressure for further price cuts given the low-interest rate levels.

As such, Hong Kong is quickly losing its attraction to international investors as reflected in the survey.

"Investors are chasing assets or markets that offer higher return or are in the upward cycle elsewhere in the region, such as China and Japan. There remains a considerable level of interest from occupiers and institutions [such as insurance] from mainland China who still have strong desire to put their flags in Hong Kong," Choi says.

The survey also revealed a number of other interesting trends, including: respondents continued displaying a strong preference towards investing in gateway cities such as Sydney, Tokyo and Shanghai; investors are polarised at both ends of the risk curve; some indicated that opportunistic/value-added is their preferred asset type; others are looking at prime/core, while relatively fewer opted for secondary assets; and investor appetite for secondary assets is increasing. However, buyers are deterred by the aggressive pricing for prime/core assets and are looking to capitalise on the pricing gap between core and secondary locations

CBRE says that its Asia-Pacific Investor Intentions Survey 2014 was carried out online in January and February this year and covered a wide range of real estate investors, including fund or asset managers, but also others including private equity firms, banks, insurers, private property companies and real estate investment trusts. Respondents primarily comprised Asia-Pacific-domiciled investors, but global investors headquartered elsewhere with the ability to invest in Asia-Pacific were also included.