Friday Asia Digest – Pension & Retirement Funds Venture Overseas

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Global cross-border investment trends intensified this week, as pension and retirement funds join the international property investing party. CalPERS, (California Public Employees’ Retirement System), the USA’s largest public pension fund, with assets of 237 billion USD,  is committing $530 million to invest in ARA, a new Chinese real estate funds which, in turn, invests in high-quality downtown office buildings malls in densely populated suburbs in China, Hong Kong, Singapore and Malaysia.

Sacramento-based CalPERS has had success with previous ARA investments. “Income growth and urbanization remain the key themes for growth in China,” said Joe Dear, CalPERS chief investment officer, in a news release. “China’s office and retail sectors offer stable rental income and potential for capital value growth.” An interesting statement, considering the latest figures out of China – where shares resumed their downward spiral on Thursday, hurt by steep losses for property developers that dragged down on the Hong Kong market as well. Poly Real Estate, one of China’s biggest developers, dived 9.2 percent in Shanghai on August 2 – its worst daily loss since April 2010 – right after Beijing announced a clampdown on the sector.

Most Chinese property stocks, however, have climbed 5-15% year to date. Those listed in Hong Kong have done even better, up 20-70%. Analysts say this is partly due to loose monetary policy, which creates appetite for hard assets. CalPERS isn’t the only confident investor, too – Singapore’s City Developments (CDL) is also confident China’s residential property market won’t crash, and states that it’s waiting for opportunities for hotels to get cheaper. The company is planning to launch its first residential development in Chongqing, in southwest China next year, should the property market improve. Kwek Leng Beng, executive chairman of CDL, said: “This sector is too big a pillar for the China market to allow the property market to crash and there will be a lot of upheaval. In fact, recently the central bank seems to be relaxing the reserve ratio of the bank and so on.” Its confidence in the market is underpinned by a trust that authorities will act to avoid any sharp correction in prices.

In similar fashion, South Korea’s National Pension Service has been the largest foreign public sector buyer of London property, with 1.04 billion pounds in purchases since 2008, when the global financial crisis first hit home. South Korea, one of Asia’s fastest growing economies, is only one of many who have been active in the UK market – the share of Asian-purchased investment property in London jumped from 2% 2000-2007 to 11% percent in 2008-2011, according to CBRE Group.

If those two funds didn’t have enough capital between them it would seem that Malaysia, which as noted last week is one of Asia’s rising stars, has been collecting its capital and, in similar fashion to China, seems to be sendind it overseas to resource-rich Australia – energy sector superannuation fund KWAP, government super funds PNB & EPF (Employees Provident Fund), as well as private investment company Amcorp Group Berhad, and sharia-compliant fund Tabung Haji have all jumped on the “Aussie” mineral and directly related hotel investment bandwagons – EPF, PNB and KWAP have already bought in Australia, while KWAP is buying the Exchange Centre in Bridge Street, Sydney. With its international property investment strategy established only in 2010, and with an initial allocation of about 3 billion USD, EPF has, within months, invested 1.49 billion USD and pumped almost 500 million into Australian property, including its joint venture with industrial property company Goodman Group. Malaysians in particular were interested in the resource-rich states of Queensland and Western Australia, as Malaysia’s substantial oil and gas industry and its investors understand the economic flow-on effects, said John Long Lasalle’s regional director of international capital group for the Asia-Pacific, Alistair Meadows.

Global Gossip

Asia Property News* USA log exports grew by 5.2% in the first quarter of 2012, as overseas lumber shipments more than doubled from 2001 to 2008. Over the past two years, demand from China has fueled much of the increase in timber exports. The lumber industry is very closely tied to the housing market in the international real estate sector, as lumber is used in every stage of house building, including ongoing maintenance & repairs. The increasing price of lumber and rise in the sector’s ETF is a bullish sign for international real estate, and in particular the Chinese housing market.

* CBRE’s Luxury Residential Rental Index increased by 0.8% quarter on quarter, following a 1.8% decline in Q1 2012, as Shanghai, Bangkok, Beijing, Hong Kong and Singapore recorded mild rent improvements. CBRE warns against considering this to be a sustainable rebound, however, as short-term prospects for the leasing market remain downbeat.

* More and more REITs pop up in Asia, as regional governments warm up to the idea of using the structure to draw more international investor funds. Thailand was reported as making the transition from conventional property funds to REITs, which offer much wider scope to investors as well as developers. Thai government is expected to finalise REIT regulations in the third quarter of this year. Capital gains from property funds in Thailand are not subject to tax, which is the strength of this asset class. So, if the government has to tax returns on REITs, the method chosen and rate would have to be considered carefully, to ensure that the REITs aren’t less attractive than property funds. The Vietnamese government, as well, has been rumored to see REITs as an attractive way to attract more funding, to help build much-needed residential stock. Under amendments to the Securities Law, REIT-like structures can be set up as joint-stock companies or as unincorporated funds. A draft decree spells out the legal and regulatory framework for each of them, but for the time being much will be decided on a case-by-case or discretionary basis.

(Partial list of Sources – “Biz Journals“, “Korea Times“, “AI-CIO“, “Lesprom“, “Property Report“, “Bangkok Post Business“, “Reuters India“,”Channel News Asia“, “CNBC“, “The Australian“)

(Pic 1 – Philip Taylor / Pic – Cut Wood / “Clearly Ambiguous“)

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Ziv Magen (G+) is an Australian, and has been living alternately in Japan and Australia for the past decade. "Born and bred" an IT project manager, he has made the transition to full-time real-estate investing several years ago, and subsequently opened a buyers' and proxy agency - assisting others in remotely capitalising on Asia's booming property market.

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