Asian HNWIs are hoovering up property deals even as allocations by institutional allocations fall sharply, according to new research by property advisory company Knight Frank.
Allocations to property by HNWIs in APAC, increased 30% in 2022 compared to 2021, accounting for more than US$1.53 billion, even as total investment volumes into the sector across APAC fell 21%, according to figures published in Knight Frank’s annual Wealth Report, on March 1.
Neil Brookes, Knight Frank’s global head of capital markets, said HNWIs were typically less reliant on debt and had ample cash reserves, making them less affected by current higher interest rates and therefore able to secure prime assets quickly.
"The ongoing repricing of assets and the stronger currency positions have allowed private investors to continue their dominance in the market,” he said, on publication of the research.
Jyrki Rauhio, regional head of credit advisory, Asia Pacific, for HSBC Global Private Banking agreed that HNWIs' strong cash positions provided opportunities now that higher interest rates limited borrowing levels for many investors.
“We are seeing more opportunities for cash rich investors to capture decent bargains in the market amid prolonged Covid and a high interest environment,” he said.
“In terms of sector focus, multi-family and mixed-use commercial tend to be favoured by HNWIs,” Harry Wu, a director at consultant bfinance in London, whose clients include a number of Asian private wealth managers, as well as sovereign and pension funds, told AsianInvestor.
Wu said that HNWIs were one group that remained in the market for attractive deals and good prices as liquidity and deal flow for institutional investors in Asia have fallen. “The combination of long-term capital appreciation and steady short-medium term yield is an enduring appeal to this group,” he noted.
He added that HNWIs were getting a toe-hold in industrial and alternative assets – such as data centres, senior and student housing, and healthcare – as well as private property funds.
These are sectors traditionally dominated by institutional investors and family offices but which have been brought into play in the last year by tokenisation strategies, such as ADDX, the Singapore-based platform that provides investors with access to private equity, hedge fund, real estate and other alternative investment for small investment amounts, for as little as US$5,000.
ASIA LEADS IN 2023
The survey found that 32% of APAC HNWI plan to increase allocations to property, compared with a global average of 28%. 43% of APAC HNWI indicated that capital appreciation is their biggest goal for wealth in 2023, compared with a global average of 31%.
19% of HNWIs intend to invest directly in commercial property, with 13% set to take the indirect route. Healthcare-related assets topped the wish list for HNWIs in 2023, with 35% expressing their intention to invest in the sector.
Wu pointed to a shift from home allocations for some investors in recent months and growing allocations to Singapore and Hong Kong.
“Prior to 2021, Chinese, Singaporean and Hong Kong HNWIs favoured direct investment in their own markets, with a strong preference for multi-family and mixed-use commercial assets.
The story has somewhat changed in recent months, with falls in valuations and trading acting as a notable headwind in Korea and China in particular,” he said, adding that mainland Chinese investors have favoured Singapore and Hong Kong, particularly premium multifamily assets, in recent weeks.
“Singapore’s highly regulated and transparent market will be attractive to UHNWIs [seeking] capital preservation and appreciation over the mid to long term,” said Nicholas Keong, head of Knight Frank’s private office in Singapore, who added that the city state’s stability in the face of global economic uncertainty had attracted new investors in the last year.
According to a survey published in the same report, 26% of APAC HNWIs said that inflation will not influence their investment decisions at all, compared with a global average of 20%.
This was partly a function of prudent monetary policies and fiscal discipline on the part of Asian central banks, which has resulted in lower inflation pressures here than in other regions, said Christine Li, head of research, Asia-Pacific at Knight Frank on publication of the research.
"In addition, the expectation that APAC will lead the economic growth in 2023, has resulted in a more nuanced landscape emerging in this region,” she said.
Also speaking on publication of the report, Daniel Ding, head of capital markets for international real estate at Knight Frank said that rising interest rates could further favour HNWIs.
“It may cause institutional funds to adopt a watch-and-wait approach, creating opportunities for private capital to increase their activity in commercial real estate investments," he said, adding that office and hospitality remained popular sectors