Asia Pacific real estate growing in popularity

Asia Pacific is back on the radar screen of an increasing number of American and European property investors, according to a report released this week by Jones Lang LaSalle.

“Investment demand is being driven by two major motivators – the opportunistic funds targeting growth assets in Asia, coupled by the relative transparency and low risk profile of the Australian market,” commented Dr Jane Murray, Head of Research – Australasia at Jones Lang LaSalle.

Particular interest has been shown in the Japanese office market following signs of recovery across the country’s property market since the late 1990s. Global investment houses have demonstrated interest in non-performing loans with real estate collateral, as well as J-REITs, including Morgan Stanley and ORIX Asset Management.

Another hotspot has been the Seoul office market, which underwent deregulation in 1998. International interest has largely been sourced from private equity funds, US bank-managed opportunity funds and international insurance companies. 2002 has seen four major deals concluded by foreign investors, including LaSalle Investment Management’s Recovery Fund acquiring the Chokson office tower in Seoul. In addition, Morgan Stanley bought three office buildings for a combined price of A$148 million (approximately US$81 million).

“Australia too has been the focus of increasing attention, particularly from the European funds, although this is yet to translate into a large number of deals. This interest is likely to increase over time driven by the counter-cyclical benefits offered by the Australian market,” added Dr Murray.

The globalisation of the real estate industry has prompted property investors from the Asia Pacific region to look for deals in Europe and North America. “We are seeing this trend increasing particularly in Australia with the small size of the market and the large volumes of capital entering the market as a result of employer superannuation contributions, demand which cannot be satisfied by the current level of available stock” stated Dr Murray. Jones Lang LaSalle’s Survey of Investor Sentiment in May 2002 revealed that 40% of Australian investors were intending to invest offshore in the next five years. Following the lead of Australian investors such as Westfield, Lend Lease and Macquarie Bank, we are now seeing other top and second tier investors actively looking for opportunities in Asia and the northern hemisphere.

Capital flows within the Asia Pacific region have also changed over the past decade. The Australian property markets saw a huge influx of Asian capital in the 1990s, with 25% of transaction volumes completed by foreign investors. Japanese investors EIE, Kumagi Gumi, Itochu, Marubeni and Hazama Gumi were the first to come to Australia, attracted by the geographical proximity of Australia and the negative correlation between their economic cycle and that of Australia. They were followed by South East Asian investors.

“The onset of the Asian economic crisis in 1997 saw many Asian investors exit the Australian market with most unlikely to return in the foreseeable future due to ongoing economic challenges in Asia and hefty increases in capital values in Australia,” stated Craig Williams, Managing Director of Jones Lang LaSalle Capital Markets.

Over the longer term, Mr Williams doesn’t predict a return to the influx of foreign capital into the Australian property markets on a scale similar to the 1980s and 1990s by Asian and other foreign investors. “Whilst international interest has not disappeared, it will be increasingly difficult for foreign investors to compete with domestic interests. The high level of Australian capital in the market seeking investment grade property, largely driven by the rapid growth in pension savings in Australia, due to compulsory superannuation saving, a rapidly ageing demography, generational wealth transfer, and rising wealth levels, cannot be satisfied by the level of available supply” he stated.

(source: Jones Lang LaS

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