Singapore Contributes About 27 Per Cent of the Total Value of Asian Outbound Real Estate Investments; Next Wave of Investments Will Target Non-traditional Property Sectors and Areas
According to Colliers International’s latest regional white paper release, “Riding the Next Wave of Asian Buying Spree”, while Asian real estate investors traditionally focused on their home country or region, they are extending their geographical boundaries to include the United States, Australia and countries in Europe, as they pour increasing amount of money from their home markets to overseas.
The total value of outbound investment by Asian investors has continuously grown from approximately US$1 billion in 2001 to more than US$30 billion in 2013. The onset of the first round of quantitative easing in 2009 further accelerated the momentum.
The main pull factors are the higher yields available in the United States and European markets, the growth potential created by economic recovery in them, and the appeal of real estate assets in prime gateway cities of the US, Europe and Australia, due to the high level of transparency in those markets.
Mr Terence Tang (鄧文傑), Managing Director of Capital Markets and Investment Services | Asia, Colliers International, says, “Capital today is very mobile. Singaporeans are alike other Asian investors, always in search for higher returns and better risk-adjusted return opportunities. Given the liquidity and lack of such opportunities at home, these capitals have to be invested elsewhere.
Mr Terence Tang adds, “One of the earliest waves of outbound Asian investments is made by the institutional investors, which include sovereign funds, insurance companies and financial institutions. This group of investors, like the GIC, generally takes a much longer term view in their investments and is often the first mover.
The second wave is by the high net worth individuals and listed investment companies. This second group are prepared to take higher risk for a medium term investment horizon, as they required higher returns than the first group. An example of this group is Ho Bee Land.
The last group is the developers, who take even greater risks, as they require much higher returns than what they can get at home. Normally, this group of investors/developers will go into a market where there are signs of economic growth/recovery and the motive is for short term trading profit. One such developer is Oxley Development.”
The cooling measures that the several Asian governments (such as Singapore, Malaysia, Korea, and China) have put in place to control escalating real estate prices in their markets, as well as new policies to encourage offshore investments (as in Korea, Taiwan and China), serve as the push factors affecting the reversal flow of capital from Asia.
Do Singapore Investors Dominate the Market?
Hong Kong, Mainland China and Singapore are the region’s biggest buyers in real estate outside Asia, accounting for 71 per cent of the total amount the region invested in 2013. They are set to remain the key sources in the next few years.
Of the US$30 billion worth of outbound investments made by Asian investors in 2013, approximately 27 per cent was contributed by Singapore.
Mr Terence Tang comments, “Asian outbound property investments beyond Asia really took off in 2009 – led by the Chinese investors who achieved a record investment of US$9 billion in 2013, followed closely by Singapore investors. While Singapore investors invested some US$5.3 billion within Asia, their investments outside Asia were higher at an impressive US$8 billion.”
Outbound real estate investments by Singapore investors has begun its uptrend since 2011, with some US$2 billion worth of investments registered in 2011 and approximately US$6 billion in 2012.
Ms Tang Wei Leng (邓慧玲), Executive Director of Investment Services, Colliers International, says, “Asia is currently in a different stage of the property cycle from the Americas and Europe. Except for industrial asset whose yields are comparable, yields for all other asset classes outside of Asia are generally 2-3 percentage points higher than in Singapore – a major pull factor for Singapore investors to look beyond the region.”
Top Market Destinations for Investors
The Paper revealed the first two waves of outbound property purchases by Asian investors since 2000.
The first wave was targeted quality real estate in London and Sydney, which were also the favourite among Singapore investors. Before the global financial crisis, a significant portion of outbound capital also went to other European cities – including Paris, Munich and Madrid.
Asian investors mainly focused on trophy assets in prime cities during the first round of outbound investments, as these are mainly the longer-term investors, such as GIC.
The next wave is expected to be in the fringe areas of gateway cities.
Preferred Property Sectors by Investors
Office buildings were identified as the top favourite among Singapore investors in 2013, contributing 60.1 per cent of the total outbound investment volume.
Ms Tang Wei Leng comments, “While Singapore investors have appetites for all asset classes, they generally prefer well-located office buildings with attractive yields of more than five per cent. Nonetheless, it is observed that they are becoming more receptive to residential, commercial or mixed-use redevelopment opportunities, as they gain confidence in outbound investments.”
While Asian investors, including Singapore investors, concentrated on overseas residential opportunities in the past, the gradual economic recovery and growing investment demand have begun to increase the popularity of commercial real estate. In fact, offices have become the favourite sector among Singapore and other Asian outbound investors, with statistics showing its percentage weighting increased from 45 per cent in 2001 to 60 per cent in 2013.
Ms Tang Wei Leng comments, “The property market – regardless of regions – moves in cycles and will adjust itself accordingly to find equilibrium between buyers and sellers. While Singapore investors are currently waiting for the opportune moment to make strategic investments on home ground, we expect them to continue to expand their outbound investments in the United States and Europe in the near future – backed by a strong currency, low interest rates and more exciting outbound investment opportunities.
Additionally, countries on the recovery track, such as the United States and European countries, where we have the advantage of stronger exchange rates, would also be on the radar.”
Mr Terence Tang concludes, “Singapore investors, as with other Asian investors, will participate in the next wave of outbound investment, which is expected to take place in the fringe areas of gateway cities – such as London East and downtown markets in Manhattan, where investors will find prices more attractive than those in traditional core locations. These investors will also take on additional risks in non-traditional property sectors, such as hotels, and to commit to value adding schemes – including conversion and redevelopment opportunities in the secondary locations of gateway cities.”