Singapore, along with Mumbai, Shanghai, Tokyo and Hong Kong are in he top five cities that Asian property investors have highlighted as their main focus in 2014, and the majority of are also prepared to take on more risk.
Most respondents believe Asia’s property markets will improve, according to Colliers 2014 Global Investor Survey. Investors remain cautious in the face of the possible tapering of quantitative easing in the U.S. and slower than expected economic growth in Asia.
According to the report they have started to look for higher rates of return by sourcing quality real estate investment opportunities that offer premium yields and stable rental returns.
Despite the increased risk premium among Asian investors, capital is likely to continue flowing into the region in the long term, as investment sentiment is expected to remain strong in 2014.
According to the survey, most Asian investors (62 percent) believe Asia’s property markets will improve over the next 12 months. This shows that they remain quite positive about investment opportunities in the region.
Many Asian investors (41 percent) believe investment volumes in the region will increase by more than 10 percent year-over-year. This is mainly due to the strong performances of its asset markets. In 2014, respondents are more conservative with 41 percent believing that volumes would increase between 1 percent and 10 percent. This is in line with concerns that interest rates may rise.
Meanwhile the introduction of various governments cooling measures in both the residential and commercial sectors during Q1 2013 dampened investment demand in individual markets. However, cash-rich end users remained active in the sales market to avoid the risk of rental volatility.
This trend was illustrated by a turnkey purchase of the West Tower at One Bay East in Hong Kong during Q2 2013 by Manulife, a Canadian-based financial services group, for a total price of US$577 million.
Investment decisions by most Asian investors are driven by fundamentals
Some 69 percent of Asian investors plan to increase their property portfolio during the next six months, similar to 2012 when 70 percent planned to expand. Like their counterparts worldwide, Asian investors regard property fundamentals as the most important factors in their investment decisions, followed by economic expectations (especially economic growth) and property yields. In contrast, currency risks, the availability of JV partners and the level of distress were considered to be the least influential factors.
Asian investors, according to the report, have begun to price greater risk premiums into their search for returns. They are doing so in anticipation of an interest rate hike amid increased worries that the U.S. Federal Reserve may start tapering quantitative easing measures.
Most (55 percent) said they were ‘likely’ to take on more risk over the next 12 months, while 10 percent were ‘highly likely.’ Compared with global peers, prospective real estate investors in Asia are demanding higher rates of return. More than half (67 percent) of the respondents were targeting IRRs above 15 percent, while a large percentage (32 percent) were targeting in excess of 20 percent on a leveraged basis.
Top five cities for investment
Asian investors still prefer their home markets. Most Asian investors (75 percent) sourced the lion’s share of their capital within Asia, followed by EMEA (40 percent) and the United States (30 percent). This was roughly in line with where the capital is being invested; 77 percent of Asian respondents considered Asia to be their primary investment focus during the next 12 months.
While Asian investors still prefer their home markets, there is a growing trend of Chinese investors looking overseas for growth and diversification opportunities in gateway cities like New York, London, Sydney and Melbourne.
On a country level, the investment focus was strong in China and Singapore, with 42 percent and 21 percent of Asian respondents respectively indicating that they plan to invest in those markets during the next 12 months.
Investors considered Singapore, Mumbai, Shanghai, Tokyo and Hong Kong to be the top five cities to focus on in the future.
Mumbai has jumped up the ladder to enter the top five since last year. The city’s emergence as one of the most attractive locations for real estate investors in Asia can be explained by its status as India’s business hub; the country’s economy has also grown steadily and consistently in recent decades, supported by government assistance in upgrading the local infrastructure to international standards.
To download the full Colliers 2014 Global Investment Sentiment Survey click here.
Andrew Batt, International Group Editor of PropertyGuru Group, wrote this story. To contact him about this or other stories email andrew@propertyguru.com.sg
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