As Asia Pacific continues to grow and develop, there are plenty of opportunities for real estate investors. Institutional appetite is healthy, with reserves of US$32 billion in the region, and the market is expected to deliver favourable returns in the next three years.
“There has been a lot of capital around in 2016, with new investors attracted to Asia whether they are large sovereign funds, pension funds or Chinese insurance companies. These investors are allocating capital to real estate,” says Stuart Crow, JLL’s Head of Asia Pacific Capital Markets.
With global economic uncertainty, there is greater emphasis on real estate investment and allocation of funds into the market as uninvested capital worldwide reached an unprecedented level since the global financial crisis in 2008. It stands at US$230 billion last November—a sign that 2017 would continue to see active transactional volume.
Investors are looking at secondary markets in Southeast Asia such as Vietnam and the Philippines. Both countries have experienced a strong GDP growth in 2016 of about 6 percent, a streak that is set to continue this year. Vietnam’s real estate sector saw a 12 percent year- on-year increase in investment in 2016 while the Philippines is enjoying a boom with low vacancy driven chiefly by business process outsourcing (BPO).
China in the spotlight
Despite the news of China monitoring its capital outflows, JLL foresees little long term change.
“Investing overseas is a strategic move for most Chinese investors,” says Crow. “While there may be some short- term slow-down or delay, we expect few long-term structural changes. The trend of Chinese capital going out for real estate is not stopping. If anything, it is going to gather momentum due to the enormous capital base in China.
Within China, office space in Tier 1 cities such as Shanghai and Beijing still attract a strong interest and it is expected perform better than many other Asia Pacific real estate markets.
With reforms geared towards consumer-and-services-sector economy, retail projects remain in-demand, especially for new completions or opportunities to redevelop and reposition older malls.
India on the upswing
Investment activity is set to intensify in India as more global capital is anticipated and several deals are lined up. Investors are buying core assets, hoping to capitalize in the future with REITs.
Indian cities Bangalore and Mumbai have emerged strongly for investors on the back of increase in supply of office space. There is also a significant demand for residential and warehouses with modern facilities.
The impact of currency movement
Most major currencies are expected to depreciate against the U.S. dollar. As the volatility experienced post Brexit and after the U.S. elections has shown, currency movements will lead to a significant impact on real estate investors’ returns.
The Australian dollar is expected to strengthen with the recovery in commodity prices to deliver the highest currency-adjusted total returns for USD investors in 2017. Markets such as Japan, Korea and Singapore may see lower or negative total returns for USD investors as these currencies are expected to weaken against the USD in the near term.
Retail is looking attractive to investors keen, especially in markets with growing domestic demand such as India, Vietnam and the Philippines. Malls in China, Japan and South Korea are also developing into trendy multi-concept spaces
Niche sectors such as self-storage, education and aged care are looking attractive to investors seeking to diversify their portfolio. And the rising popularity of e-commerce is fuelling demand for logistics and warehousing.
As investor sentiment seems to be more cautious in 2017, it may be essential to look at an asset-specific strategy, targeting such niche sectors.