Institutional investors moving into Asian property

Japanese property proves appealing for overseas investors, while for Asian institutions, there’s no place like home for real estate opportunties, new studies indicate.
Institutional investors moving into Asian property

Asian institutions are planning to move into property assets in the coming year, according to forecasts, as investors aim to right an under-allocation to the asset class.

A Preqin survey of institutions worldwide found that 71% of those based in Asia are planning to make new private real estate commitments in the next 12 months, compared with 35% for their counterparts in the US and 24% in Europe.

Additionally, even though investors have prioritised opportunities in real estate in their home region, the Asian property market looks to benefit from inflow on a global basis, as it is being targeted by 55% of investors from Asia, 48% from Europe and 39% from Europe.

Japan has remained the most active market for investment, followed by Australia, Hong Kong, China and South Korea, according to a new report by Knight Frank.

A weakened yen has led foreign investors such as AXA Real Estate, GE Capital and Goldman Sachs to make purchases in the Japanese property over the last six months.

In 2012, there were 45 real estate deals into Tokyo totalling $2.7 billion, which has already been exceeded by the 46 deals made so far this year, says Nicholas Holt head of research for Asia Pacific at Knight Frank.

The growth might even by higher if not for the accessibility of the market. “Going into Tokyo and executing a [property] deal is not as easy as in a market such as London,” says Holt. “The culture around real estate [investment] is slightly different in Tokyo, and that adds hurdles for foreign investors.”

Most institutions are below their target allocations to the property asset class, with insurance companies the most likely to be under-allocated, according to Preqin. The data provider predicts that a large pool of capital will flow into real estate globally in the medium to longer term.

The net asset value of closed-ended private real estate funds have been steadily increasing on a quarterly basis since the second quarter of 2010, according to Preqin.  

One of the largest of such funds on the market is Blackstone Real Estate Partners Asia, which is seeking to raise $4 billion. It is only outsized by another Blackstone vehicle, Real Estate Partners Europe IV, which has a target size of €5 billion ($6.9 billion) and the global Lone Star Real Estate Fund III, which aims to raise $6 billion.

During a visit to Hong Kong last year, Blackstone chief executive Steve Schwarzman cited Asian property as a focus for the private equity giant, given a moderation in valuations.

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