APREA 2013: Cautious confidence in Asia growing

Foreign institutional investors are beginning to return to Asian real estate with renewed interest, but are more cautious of taking inordinate risks, delegates heard at the APREA Property Leaders Forum heard today.

After falling out of favor for the past few years, Asia’s real estate market is beginning to generate interest from foreign investors around the world – in particular European institutional investors, delegates heard today at the APREA Property Leaders Form in Singapore.

The appetite for Asia is still not nearly what it was five years ago. Stuart Grant, the senior managing director and head of Asia Pacific real estate for the Blackstone Group, estimated on a panel focused on quantitative easing that allocations to Asian real estate have dropped around 80 percent from a peak in 2007.

However, panelists throughout the first day of the two-day event agreed that interest has begun to pick up again. Choy Soon Chua, managing director at SEB Asset Management, particularly pointed out European pension funds as increasingly interested in Asian real estate.

Some Italian pension funds, for example, had never invested outside the country before. “And now, they’ve taken the first leap with us to come out to Asia,” Chua said on the CEO Forum. In general, Chua found that European investors are keen to get into Asia, though they have a degree of caution.

A study conducted by APREA found that stronger real estate growth in 2012 and recent actions by banks and governments that are much more supportive of real estate investment – such as Beijing allowing Chinese insurance companies to invest in the asset class – have increased confidence in the market for both institutional investors and fund managers alike.

Hitoshi Saito, the senior executive managing director of Mitsui Fudosan, also pointed out the recent efforts of the new Japanese government. “The government has succeeded in changing market sentiment – and it has created high expectations,” he said on the panel.

The various government stimuli have been particularly important in terms of stoking positive market sentiment in Asia. Chua explained that Asian markets can react more strongly on sentiment than on underlying fundamentals.

As a note of caution, however, Prudential and M&G Real Estate chief executive Alex Jeffrey pointed out that, in spite of the various governemnt measures, Asia was not immune from global economic headwinds. Nonetheless, he concurred that institutional investors were increasingly interested in Asian real estate, particularly those who had not invested in Asia before.

Asia’s real estate market will face its share of troubles, Equity Group Investments chairman Samuel Zell added in his keynote interview, earlier in the day. In particular, the region’s scarcity of natural resources like water and oil will put a damper on how much the middle class can grow and thus, how much real estate it can afford, he warned.

Institutional investors remain aware of Asia’s past – in particular the crash of 1997 – and are cognizant of the risks, so are looking primarily to partner with fund managers that have a long-term focus on one already successful strategy, according to William Ferguson, chairman and chief executive of Ferguson Partners and presenter on the CEO Forum.