Asian inbound property investment forecast to rise
Print Edition
INBOUND real estate investment in Asia will take a “quantum leap” in 2015 while the flow of outbound capital from the region will accelerate, a report by global property services provider Colliers International predicted.
“Inbound investment into real estate in the region will increase 102 percent this year, more than three times the rate of growth in 2014,” said Terence Tang, managing director of capital markets and investment services, Asia. “The office market Asia-wide is at a stage in the cycle where new supply will rise 152 percent, presenting significantly more opportunities.”
In particular, Shanghai, Hong Kong and Singapore will remain the best target destinations, but structural change in markets such as India is making them more attractive, according to the report.
Outbound flows into real estate, meanwhile, will increase 61 percent in 2015 from a record US$46 billion last year, Colliers predicted, due to demand from traditional investors and relaxed policies.
For instance, China has streamlined the approval process for mainland companies that are investing overseas. In Japan, the US$1.1 trillion Government Pension Investment Fund is considering allocating 3 to 5 percent of funds to global real estate, which would make it the world’s largest real estate allocation.
In terms of volume, the Chinese mainland (31 percent), Singapore (27.2 percent) and China’s Hong Kong (12.9 percent) have been the top three sources of outbound real estate capital, accounting for 71.1 percent of the total outbound capital the region invested in 2014.
“Prime gateway cities such as New York, London, Sydney and Melbourne continue to be the preferred destinations for outbound Asian investors,” said Simon Lo, executive director of Asia research and advisory. “But with existing income-producing assets being gradually snapped up and increased competition from local players, some overseas investors are turning to fringe locations in those markets where better returns are available.”
The secondary locations of gateway cities such as Los Angeles and Frankfurt offer the prospect of better returns, albeit with marginally higher risk. That should encourage investors to expand their focus beyond New York and London, the perennial favorites in North America and Europe, the report said.
“China is one of the most popular destinations for inbound real estate investment and cross-border capital flows within Asia,” said Carlby Xie, director of research, Colliers International China. “In terms of target cities, Shanghai remains at the top while the other first-tier Chinese cities including Guangzhou and Beijing are in the top six.”
As Shanghai will remain the top target for inbound and intra-regional flows, Colliers recommends office space in the Pudong New Area as the best investment play, yielding 4 to 5.5 percent thanks to sustained end-user demand and potential rental growth.
In Hong Kong, with real estate yields compressed, investors would tend to adopt more active strategy in order to achieve better risk-adjusted returns.
Encouraged by the push for industrial revitalization, repositioning plays, either through conversions or the repositioning of tenants, will continue to attract interest from investors.
Like San Francisco, Singapore is an outlier where residential presents the best opportunity, in particular high-end luxury apartments. As inventory rises, asking prices have softened and the gap between buyers and sellers is narrowing, Colliers said.
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