Report flags built-asset opportunities

China, India, Indonesia and Malaysia are among the countries tipped to see the fastest growth in terms of return on real estate and infrastructure assets, finds a study by EC Harris.
Report flags built-asset opportunities

Singapore is the most efficient country in terms of generating income from its built assets, at $29,500 per person per year, according to a new study. That is explained by its healthy balance between knowledge industries and manufacturing, as well as its comparatively dense population. By contrast, the eurozone has relatively low returns due to overcapacity and economic stagnation.

But other countries, such as China, Indonesia and Malaysia, offer the best investment opportunities for institutions looking to deploy capital, found the report by quantity surveyor Arcadis.

“The countries where you have sustainable growth are where you have integrated plans for economic, social, transportation expansion,” said Graham Kean, Asia leader at EC Harris, the real estate consulting subsidiary of Arcadis. “I can see Malaysia making massive strides based on the strategy they have now, and the joined-up thinking on a government basis. You’ll get companies thinking this is not a bad place to be.”

China generates the most value out of its fixed assets in total US dollar terms, at $6.9 trillion as of last year, a figure forecast to rise to $7.4 trillion in 2014. The US figure, at $5.6 trillion, is growing at a much smaller rate; it is likely to show only a marginal increase to $5.7 trillion this year.

The return on built assets amounts to the income generated by buildings, infrastructure projects and so on. Not included are natural resources, agriculture, intellectual property, labour costs and wages. The figure shows how effective a nation is at using its buildings and infrastructure.

“Companies are attracted by good infrastructure, a quality work force and a competitive advantage,” Kean said.

Per capita, China and India are among the worst countries at extracting value from their built assets. But in percentage terms China is making progress, and it will likely lead the world in terms of improvement in its built-asset performance, followed by Saudi Arabia, Indonesia, India, Malaysia and the Philippines.

Those are the most dynamic nations at the moment, meaning they should be investment targets, said EC Harris. They are also the kind of emerging-market nations that will, after decades of talent flight to the West, start luring nationals back home.

“The type of jobs you can create drives economic growth, which then drives demand for better places to live, better places to go and spend your money and time, and this creates a virtuous cycle,” said Kean. “That helps you retain talent instead of seeing it migrate to other countries.”

The improvement in built assets does not simply involve better buildings where people work. It’s also important that the environment is managed wisely, in terms of sources of power, water treatment and waste-water management, and infrastructure assets in general.

China and Malaysia are among those countries that have started to lure back educated people who had moved overseas, Kean noted. The quality of economic infrastructure, health and education are key considerations in that move.

Malaysia has a particularly good economic-transformation plan that outlines how the country envisions its growth through 2022, said Kean. While Kuala Lumpur is the country's economic centrepoint, the plan also targets expansion in Iskandar, Penang and the like.

“It will democratise growth,” he noted. “It’s that clever, integrated thinking that distinguishes some countries that think faster than others.”

This distinguishes it from, say, Thailand, where Bangkok remains the exclusive focus of the economy. Indonesia and the Philippines also rely too much on their capital cities for their economic drive, Kean added.

The challenges that face Japan, Hong Kong and Singapore are much the same as those faced in the West. With a mature asset base and little opportunity to boost their economies with increased infrastructure investment, the issue is to make the most of the existing fixed assets, by making them more efficient.

In Britain, for instance, 40% of the public sector's carbon footprint comes from the National Health Service. There are opportunities to improve the operational efficiency, energy use and use of resources in such institutions, said Kean.

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