Cross-border Investments Higher than Ever
Research data released this week suggests that more and more foreign investors are putting their money into remote countries and economies and their real estate markets – in sharp contrast to traditional concerns regarding lack of familiarity, as well as perceived language and cultural gaps – most likely as a result of the financial turmoil experienced around the world, which has resulted in a plethora of available, immediately income-producing, highly reduced asking price properties.
As RREEF, CBRE and UK-based Aberdeen Assets all disclosed in various publications this week – more and more US & UK investors are entering the international arenas, with the biggest destination for non-Asian investors being Australia – and the biggest destinations for Asian investors being the heavily discounted property markets in the US & UK. Also hugely popular were several developing centres, in close proximity to prime RE locations, in Germany – Europe’s strongest economy. Steadily recovering prices and compressed yields around prime locations world-wide, however, seem to dictate renewed interest in secondary locations – a trend which is expected to start showing in results for these areas around the second half of the year.
Commercial & industrial property, in particular, seems to be drawing the majority of capital, with office and retail spaces flagged as favourites for overseas investors in all countries due to high returns – in spite of the higher volatility normally associated with these markets, as opposed to residential real estate. Data from New York City-based Real Capital Analytics on cross-border capital flows, show investments in the U.S. from Asian investors like China and Hong Kong are growing rapidly. The most recent total transaction value is 1.5 billion USD. Eighteen months earlier, that number was almost zero.
In the entire Asia-Pacific region, investments have risen app. 21% from this year’s first quarter, a trend led by investors “with little or no need for debt finance”, said David Green-Morgan, global capital markets research director at Jones Lang LaSalle. JLL have also jumped on the Asian RE bandwagon, with their purchase of Singapore’s market leader, Credo Real Estate, at an undisclosed sum, that various analysts have estimated to be between 16-32 million USD ($20-40 million SGD). The purchase is expected to put the joined conglomorate on top of app. 35% of Singapore’s real estate market.
Japan, China, Australia – Asia’s Top RE Destinations
Still making Asian real-estate headlines on a weekly basis, Japan has just been found to be Asia’s largest real-estate investment market, surpassing China in 2nd place and Australia in 3rd place, to the tune of an astounding total 13.6 billion USD in turnover – a trend led by some of the biggest names in investment and finance, as mentioned in last week’s digest. Transactions in Japan, however, were mostly dominated by domestic investors, whereas in China transactions were mostly performed by Hong-Kong based investors, buying into the mainland.
Other up and coming RE desinations in Asia, such as Thailand, the Philippines and Indonesia, also drew a sharp increase in foreign interest, as their luxury residential markets are slowly becoming the region’s most sought-after, as opposed to Singapore and Hong-Kong, previously hailed as “the ultimate luxury city pad” dream destinations. Unstable governmental policies and lack of security, however, mean that all three countries have still got a long way to go as far as foreign interest is concerned. While Japan, Singapore and Hong-Kong are considered amongst the safest business environments in the world, the rest of Asia’s real-estate hubs are still struggling with limiting or non-existent foreign purchase legislations, corruption and uncertainty, mostly due to regime control (or lack of, as seems to be the case in India, despite the government’s best efforts).
* Red Fort Capital Advisors, an Indian RE fund, is expecting to invest app. 500 million USD (half again its capital value) into new residential projects in Delhi and Mumbai, quoting an increase in housing demand from India’s newly emerging middle-class. And while foreign investors have been quoted as being “disappointed” with India’s returns on investments and promised yields “gone sour”, Red Fort chief claims that for local investors, or for those foreign investors who are well familiar with India and its property market – the time is rife. Considering the state of India’s economy, this may well be the case.
* China’s retail industry seems to be the current “cash cow” many investors are aiming at, with the country’s slowing economy not reflecting in its consumer habits – consumption is estimated to rise to about 45 percent of GDP by 2015, from 36 percent last year. This in turn should boost demand for shopping and entertainment centers, experts claim. Strategic, long-term growth in middle, upper-level incomes and more disposable incomes from middle class families are expected to further boost the market, claims Nick Axford, Head of Research for Asia Pacific at real estate services firm CBRE.
* China’s property market, however, has most likely ceased its rallying, at least for the time being, as government cooling measures, in place for the last two years, are not likely to be lifted anytime soon, and further gains will be difficult because of rich valuations and economic headwinds in the second half of 2012 – so claims Owen Gallimore, head of credit strategy at ANZ in Singapore.
* New-Zealand, although small, has begun to draw more and more Asian investors in the last year – as the local economy has demonstrated strong resiliency in face of the global financial turmoil enveloping the rest of the world. Offices, retail, hotels and resorts are on the up and up, and have been since the rugby world-cup, hosted in New-Zealand in 2011, showcased the country to a much larger crowd of potential investors than those previously aware of its promise. The promised redevelopment of ChristChurch (pictured on right), hit by last year’s devastating earthquake, also seems to be drawing large investment funds into the country.