Real estate investment in Asia-Pacific

October 2018 | FEATURE | FINANCE & INVESTMENT

Financier Worldwide Magazine

October 2018 Issue

Despite numerous geopolitical issues, the global real estate industry enjoyed a prosperous 2017. While Europe saw rising deal flows, the Asia-Pacific (APAC) region was a hive of activity, driven by interest in Hong Kong and Singapore in particular. The final quarter of 2017 was a record-breaking period. In Hong Kong, the sale of The Center for $5.2bn was a world record for a single office block. Furthermore, hotel conglomerate Accor acquired Australian Mantra Group’s portfolio of serviced apartments for $940m and CapitaLand Commercial Trust acquired Singapore’s Asia Square Tower 2 for $1.5bn. As a result of this increased activity, 2017 was the second-best year in the past decade for investment in income-generating commercial real estate, according to Real Capital Analytics.

APAC received $90bn worth of capital in 2017, beating Europe’s $83bn and North America’s $80.9bn. One of the key drivers of the region’s growth has been cross-border activity from other Asia states. Hong Kong saw an increase of 41 percent to $20.5bn and Singapore’s cross-border capital grew 35 percent to $19.9bn. South Korea, Japan, Australia, Taiwan, Thailand, Malaysia and India were also among the biggest contributors to cross-border real estate capital in the region. Capital outflows from Hong Kong, Singapore and China have helped make the region the world’s largest source of real estate capital, according to Knight Frank.

Interest continued into 2018, as the first quarter hit another high. Real estate investment in APAC reached $40bn, 22 percent higher than the previous record set in 2008 and up 34 percent on the first quarter of 2017. Total volume reached $42bn in the second quarter, according to JLL, up 26 percent from the same period in 2017. First half volumes were also up 29 percent, year-on-year, to $81bn, the highest level on record.

One of the largest deal drivers is the overabundance of liquidity currently in the market. Institutional investors and local sovereign funds are targeting real estate assets, both globally and locally in APAC.

APAC’s core markets – Japan, India, Hong Kong, Australia and China – saw considerable activity. Tokyo became the most traded city in the first three months of the year, according to JLL, surpassing London with over $9.1bn of investment.

“The size of the populations in many of APAC’s major markets will increase the popularity of real estate as a long-term growth opportunity, particularly in those markets where a younger population and burgeoning middle-class are starting to become more influential.”

Going forward, the size of the populations in many of APAC’s major markets will increase the popularity of real estate as a long-term growth opportunity, particularly in those markets where a younger population and burgeoning middle-class are starting to become more influential. India, Indonesia and Vietnam have populations of 1.3 billion, 261 million and 93 million respectively and as regulatory governance eases, the number of possibilities available to investors will increase. “Large markets which have very supportive demographics, such as India, Indonesia and China, support a compelling case for future growth in the region,” writes Pranav Sethuraman, a member of JLL’s global capital research team.

China, of course, has an enormous population, but it is an ageing one. In 2017, the state said that about a quarter of China’s population will be 60 or older by 2030, up from 13.3 percent on the 2010 census. Regardless, real estate investment in the country is picking up. In August, the National Bureau of Statistics said that property investment increased by 10.2 percent year-on-year in the first seven months of 2018.

However, Chinese outbound real estate investment in the first six months of 2018 fell to its lowest level since 2015, according to Cushman & Wakefield. This fall was primarily due to tighter controls on lending. Chinese institutional investors spent $4.3bn on property overseas in Q2, a year-on-year decline of around 45 percent. Hong Kong remains the chief beneficiary of outbound Chinese activity, receiving around 80 percent, 88 percent of which was invested in the office sector. Hong Kong also accounted for six of the largest 10 deals in terms of value. Most notably, Hengli Investments acquired two office buildings in the city for $1.9bn. Yet, Cushman expects Chinese outbound activity to be down 40-50 percent year-on-year.

In India, interest in the real estate market is rising. This year, private equity firm Blackstone Group LLP has selected banks for India’s first real estate investment trust listing, which is expected to raise around $1bn. Though India has seen property firms struggle to access capital in recent years, as well as cope with new regulatory measures, Blackstone’s involvement in the market should be a boon. Further, India’s Real Estate (Regulation and Development) Act, 2016 is set to help make India a more attractive investment destination by increasing transparency. Areas such as the Mumbai Metropolitan Region (MMR), Pune, Gurugram, Noida and Greater Noida have attracted the most real estate investment in 2018.

In contrast to more developed countries in the region, emerging markets in APAC will likely lose out on investment as their immaturity and lack of transparency may turn investors away.

Richard Summerfield