As Asia Pacific real estate markets are underpinned by domestic demand and investment, any immediate impact from Brexit will be felt by foreign buyers unable to bid until volatility passes, and/or banks which have strong European connections which are unable to price risk in current volatile markets.
It is possible that real estate investment deal flow may slow, whilst this period of financial volatility continues. However, there will be winners. The weight of capital in Asia Pacific is such that alternative capital sources inside Asia will be able to take advantage of the opportunities presented. Some currencies will strengthen- notably the JPY- increasing purchasing power. Sharp increases in the currency could also prompt the Bank of Japan to move deeper into negative interest rates and initiate further quantitative easing. These policies, if enacted, will still benefit the real estate market.
“China real estate markets are based domestic occupiers, relatively well insulated from global turmoil. In other Asia Pacific markets, the mix is often domestic firms and MNC serving domestic economies. Asian investment capital, particularly Chinese insurers have been extremely active on the global stage. The biggest Chinese buyers of real estate are the domestic insurance companies and they have spent the last two years buying assets in Europe and elsewhere. Some of these companies may suffer from currency losses in their overseas real estate investments. In the UK, the EU referendum slowed investment into London in the first quarter; by contrast we saw a comparatively big rise in intra-regional demand with Chinese capital buying inside the region, notably in Hong Kong.“ said Dr Megan Walters Head of Research for Asia Pacific Capital Markets. She continued “ Its highly likely that Asian capital will continue this trend of buying closer to home, in markets that are as transparent as London, for example Sydney; or markets like Shanghai that are becoming considerably more institutional in nature.”
“For the real estate market of Australia, we envisage the secure and attractive nature which attracts global capital will not be impacted, and could for some be enhanced,” says Dr David Rees Head of Research for Australasia at JLL. “Both the UK and Australia are rated as preferred destinations in their respective geographical regions by global investors seeking exposure to portfolio diversification and income yield. They both rank as number one in their respective geographical regions in terms of market transparency and they are among the most liquid real estate markets globally.”
“Here in Asia markets it is possible we may see a short term hold up of a couple of Asia Pacific deals, involving funds containing a high proportion of European based investors,” adds Dr Walters. “However, the weight of global capital is such that any gap left by European investors, will be rapidly filled by other capital sources. In periods of volatility, real estate acts as an anchor in a portfolio- whilst fund managers attend to more frequently traded assets.”