22 March 2014

Asia’s real estate investors are extending their geographical boundaries to include the United States, Australia and countries in Europe as they pour increasing amounts of money from their home markets to overseas, according to Colliers International’s latest white paper – Riding the Next Wave of Asian Buying Spree. Whereas they traditionally focused on their home country or region, the total value of their investments elsewhere in the world has grown continuously in recent years, from around US$1 billion at the beginning of the century to more than US$30 billion in 2013. The start of the first round of quantitative easing in 2009 further accelerated the momentum.

“Besides increasing global liquidity, the rise in the volume of outbound investments has been driven by both ‘pull’ and ‘push’ factors,” explains Piers Brunner, Chief Executive Officer, Asia at Colliers International.

“The main ‘pull’ factors are the higher yields available in the US 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.

“The ‘push’ factors are the likelihood that the governments of Hong Kong and Singapore will keep existing local real estate cooling measures in place this year, and the relaxation of government policies concerning overseas real estate investments in Asian countries,” he adds.

Will Chinese buyers dominate the markets?
Hong Kong, Mainland China and Singapore have been the region’s biggest buyers in real estate outside Asia, and they are set to remain key sources in the next few years.

“Chinese outbound property investments beyond Asia really took off in 2009, and they reached a record US$9 billion in 2013. We believe more Chinese developers will look overseas to support the needs of their local clientele,” says Terence Tang, Managing Director of Capital Markets and Investment Services, Asia at Colliers International.

More Chinese investors are set to jump onto the bandwagon simply because they now feel more comfortable about venturing their capital in overseas real estate markets. Domestic real estate developers have succeeded in enhancing their presence in overseas markets by adopting a number of different purchase models, ranging from straight acquisitions and joint ventures with local partners to site acquisitions and development.

Meanwhile, South Korea is another Asian country catching up in terms of growth. The country’s annual volume of outbound property investments increased by more than half in 2013. The National Pension Services of Seoul is expected to invest more of their ongoing inflows of contributions in overseas assets in order to enhance their overall returns. The reason is that the country’s regulatory authority is in the process of streamlining procedures for local investors to buy overseas real estate.

Where will the money go?
The Colliers report describes the first two waves of outbound property purchases by Asia’s investors since 2000. The first wave targeted quality real estate in London and Sydney. These gateway cities remain popular, due to the transparency of their property markets. Before the global financial crisis (GFC), a significant portion of outbound capital also went to other European cities, including Paris, Munich and Madrid. During the first of outbound investment, Asian investors mainly focused on trophy assets in prime cities.

In the next wave, investors are expected to expand their scope of interest to 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.

Whereas Asian investors concentrated on residential opportunities when they started buying overseas 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 now become the favourite sector among Asia outbound investors. Statistics show their percentage weighting increased from 45% in 2001 to 60% in 2013.

“However, we believe the emerging trend will see more outbound investors taking on additional risks in non-traditional property sectors, such as hotels, and to commit to value-adding schemes, including conversion and development opportunities, in the secondary locations of gateway cities, where prices are more attractive than in traditional core locations. With the liquidity and lacking of opportunities back home, Asian investors will continue to search for higher return opportunities. These capitals are hungry to be invested.” concludes Tang.