Real estate investors are increasingly planning to raise their exposure to Asian real estate markets in general, and non-listed real estate funds in particular, over the next two years, the first major pilot survey jointly conducted by the European and Asian industry bodies INREV and AREA shows.
This INREV/AREA Investment Intentions Asia Survey was based on 65 responses including 30 fund managers, 21 institutional investors and 14 fund of funds managers. Some 50% of respondents were INREV members and 26% AREA members. In terms of origin, most respondents' headquarters are based in Europe (71%), with an additional 17% based in the US and 12% in Asia.
"Real estate investors clearly view Asia as the market of the future, given the diverse range of opportunities they see in the market with Japanese offices being the top pick for 2008 followed by Chinese residential," Nick Loup, co-director of AREA and Managing Director of Grosvenor Asia Pacific commented." Japan is clearly one of the more established markets with institutional quality stock, while China is a developing market with a private housing sector that has been growing rapidly," he added.
"The investors that responded to the survey are clearly focused on non-listed funds, considering that these account for 85% of their holdings in Asia, with access to expert management being the main reason for investing in these funds," INREV Chief Executive Lisette van Doorn said.
"However, at the same time lack of transparency and current market conditions are hampering investment in Asian non-listed real estate funds," she added.
This joint initiative is a response to INREV's last Members Survey where respondents indicated a strong demand for information on Asian non-listed real estate funds. A large number of European investors, many being members of INREV, is keen to access Asia's growth opportunities as well as recognising the diversification benefits of a global approach to their real estate strategy. Both INREV and AREA acknowledged that it would be most useful to cooperate in this respect, considering the overlapping goals related to Asian non-listed real estate funds.
The results from the survey showed that respondents felt that the credit crunch was also impacting on the Asian real estate market, through more limited availability of debt and the potential re-pricing of real estate assets. However, across the board, the effects of the credit crunch are expected to be less in the region than in Europe or the US, and the financial crisis might even turn out to be positive for Asia, as some respondents thought that this could mean more capital would be directed towards Asian real estate, which was originally allocated to the other markets.
"In terms of investment styles, the results turned out to be quite surprising, as far as investors were concerned," Loup said. "Investors indicated a considerable preference for core funds (40%), with the remainder split evenly between value-added and opportunity fund styles. Anecdotal market evidence seems to indicate that investors are generally more focused on value-added and opportunity funds, which is supported by the general character of Asia as a region of emerging markets."
Lisette van Doorn added that "Fund of funds managers are exclusively focusing on value-added and opportunistic strategies --- with fund managers even more so -- going forward, as they increasingly emphasize these higher risk strategies".