Buoyed by attractive yields, Asian investors are lapping up properties in overseas markets, with investments surpassing previous years’ records.
The first half of 2014 saw $16.2 billion worth of outbound real estate investment from Asia – a 40 percent increase over the same period last year – according to data released by the global property services firm CBRE. Singapore has overtaken China as the most active source of cross-border investment onthe continent, followed by Hong Kong and the Chinese mainland occupying the third spot.
A domestic yield compression and lack of suitable assets together with cooling measures employed in many Asian countries have been attributed in the report as some of the major factors propelling this trend.
“Asian markets are at the peak of their property cycle: In China, rents are flat and supply is more than demand, “said Ada Choi, senior director of theAsia-Pacific research team at CBRE. “Cooling measures in markets such as Singapore, Vietnam and Hong Kong make them less attractive [to investors].”
In the last year, pension plans, insurers, investment managers and property companies in Asia have increasingly been investing outside their home turf. Recent examples include Singaporean sovereign wealth fund GIC Private Limited teaming up with Australian bank Macquarie to acquire a majority stake in an Australian student accommodation and the Hong Kong Monetary Authority’s $324 million acquisition of a site in London.
New York and London continue to draw the highest capital inflows from Asian real estate investors, according to CBRE. However, in yet another change, the proportion of total outbound investment directed towards London this year has dropped to 25 percent, down from 41 percent in 2013.
“We also are seeing the top five cities targeted for investment now make up a smaller portion of the total – particularly London,” said Marc Giuffrida, executive director of Asia global capital markets, said in the report. “This really highlights how diversified global capital markets are becoming, particularly with the entry of Chinese developers who have a strong focus on West Coast US and East Coast Australian markets.”
While San Francisco and Los Angeles on the West Coast are attractive markets in the US, investors are moving beyond London and eyeing real estate opportunities in France, Germany and Spain.
At 63 percent, offices are currently the most traded asset classes. Hotels are a distant second with a 25 percent allocation, followed by retail, industrial and mixed-use developments, the report noted.
Direct investments in real estate assets abroad usually has been the common route taken by Asian investors. However, according to Choi, "investors also are launching commingled funds due to a lack of expertise in the overseas markets and not enough people on the ground.”