More money bound for property markets of US, UK and Australia
Attractive yields, transparency and change in attitude expected to see funds in the region charge into overseas property markets
In the first three quarters of last year, US$21.7 billion of Asian capital flowed into commercial real estate in Australasia, Europe and theUS, exceeding the US$20.2 billion over the same period last year. These numbers exclude the other significant capital flows heading in the same direction - that of individual investors buying into residential units inBritain, theUSandAustralia.
The real movement of large-scale commercial and residential investment has only been relatively recent - essentially after the global financial crisis. While the West lingered in distress,Asiacharged ahead as the growth engine of the world economy. Its strengthened currencies, coupled with distressed stocks in major markets around the world, created a real incentive to start venturing overseas.
Two significant deals hit the headlines in the second half of last year - the purchase by Anbang Insurance Group of the iconic Waldorf Astoria hotel inManhattanfor US$1.95 billion and Sunshine Insurance Group's purchase of the Sheraton hotel inSydneyfor US$400 million. Both deals represent the newest wave of institutional capital fromAsia: Chinese insurers. Following a relaxation in the regulations, Chinese insurers are now allowed to invest up to 30 per cent of their assets in real estate, and 15 per cent overseas. These changes have been the catalyst for this new wave of capital. And as these investors educate themselves more in the overseas markets, they are expected to become even more active.
The Wealth Report - Knight Frank's research publication on private wealth and property investments - showed ultra-high-net-worth individuals (those with US$30 million or more in net assets excluding their main home) had a strong desire to increase their investments in commercial property. This is being translated into deals concluded, with significant amounts of private wealth not only going into residential but also commercial property.
Asian developers, looking to resell in their home markets, have been active in the global property marketplace as they seek to grow their brands and tap into the out performance of residential markets in key global cities.
So what new trends could be expected this year?
In terms of sources, there is likely to be an increase in allocations from Asian insurance companies and pension funds. Over the longer term, it is also likely that new institutions will emerge from other developing Asian economies. Expect more institutional capital in the form of insurance, pension and sovereign wealth coming from Indonesia, India and Thailand.
Given steeper pricing in the core Western markets, it is expected that many Asian investors will start to look at more secondary cities in Britain and US such as Manchester, Birmingham and Houston, as the recovery in these countries becomes more widespread and pricing seems more reasonable.
There are some risk factors that could affect capital flow, most notably a continued slowdown inChina, increased competition from domestic groups in destination markets, and a potential repricing of real estate as interest rates rise. Even taking these into account, given the sheer weight of capital inAsiaand the liquidity on offer in the West, the trend of Asian capital targeting Western bricks and mortar will continue.
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