Asia-based property investors are becoming more assertive and selective about the vehicles they invest in, said Cuong Nguyen, associate director of research and strategy for Asia at M&G Real Estate.
“Many want to exert more influence and control of their investments, rather than go into a blind pool and leave it to the asset manager to run the strategy,” he added. “That’s a big change in behaviour.”
Managers have responded by installing investor advisory committees, and providing more information to investors, said Nguyen. “That’s best for both sides – the manager can talk to the investor and directly explain the investment rationale, and the investor can provide their thoughts and expertise and views.”
Although uncertainty over the economic recovery after the 2008 financial crisis had a huge impact on risk appetite, he noted, appetite has risen for riskier, higher-yielding investments over the past 12 months, and deal size is also growing.
Though Asia remains an exporter of capital, that trend will soften as demand from global investors for property in the region increases, added Nguyen. Asian real estate is now more of a strategic allocation for global investors than in the past, he added.
That demand can be expected to increase as liquidity improves and the flow of information increases.
Meanwhile, Asian investors are becoming more active in outbound, cross-border property-related investments, according to a recent report by Deutsche Asset & Wealth Management (DeAWM).
And the search for yield via foreign and riskier assets is likely to continue, as DeAWM has revised down its return forecast for most real estate markets. Investors could therefore move further up the risk curve.
In the first half of 2014, acquisitions in Asia Pacific became more difficult due to compressed capital rates for prime assets, noted the DeAWM report. The capital rate is the ratio between of the net operating income an asset produces to its capital cost. The higher the ratio, the better the return.
The report also forecasts that returns for office assets will fall slightly this year from last, and that leasing market returns will remain flattish for the next four years.
Turning to individual countries, DeAWM said it likes Tokyo’s commercial markets in the medium term, as it expects economic fundamentals to improve.
It sees Australia as a bright spot in the region, with investors remaining strongly interested in the higher yields available there. Though Australia’s economy has softened slightly, DeAWM said sound fundamentals are being reflected in the commercial real estate markets of Melbourne and Sydney.
But the firm is cautious on Hong Kong and Singapore because they are highly cyclical markets where yields are negatively affected by interest rate rises.
Meanwhile, Nguyen said that in Korea, capital that was trapped in owner-occupied offices is being released for investment. And DeAWM forecasts that real estate in Seoul will provide stable performance in the medium term, led by leasing sector recovery and increasing foreign interest.
Nguyen was upbeat on China property because of continuing urbanisation and the country’s move from export-led growth to consumer-led expansion. Also, the market is becoming more transparent and performance indicators are improving, which makes the investment process easier, he said.
However, real estate investment activity in China is subdued because of a continuing price gap between buyers and sellers, noted DeAWM.