Institutional investors are less willing to invest more in Asia-Pacific this year as compared to 2014, dissuaded by the lack of availability of quality core assets and economic uncertainty, most particularly fears of a hard landing in China, an investment intentions survey by CBRE has revealed.
From the 317 investors surveyed by the real estate services firm, 54 percent said they plan to increase their real estate purchases in the region, a drop from the 67 percent who expressed an intention to buy more in 2014.
A bulk of investors are now gravitating towards core real estate investments in the region, with the survey estimating close to 43 percent of the respondents prefer core over opportunistic and value-add strategies. The market fundamentals for core investing in Asia-Pacific, however, are impeding the flow of capital.
Asset pricing was cited as the biggest obstacle to making core real estate acquisitions for the second year in a row, with 31 percent of the respondents making this claim. Unavailability of quality core assets came a close second, particularly for overseas investors.
Dr. Henry Chin, head of research for Asia-Pacific at CBRE explained that most of the core assets are concentrated in only a handful of Asian cities such as Australia, Singapore and Japan.
A white paper on Asian fund termination released by CBRE last in October year had estimated that approximately $40 billion of real estate in Asia would be up for sale in the next two years, as close to 50 funds approach the end of their cycle.
This huge stock, however, will not be able to compensate for the current unavailability of core assets.
“The majority of the $40 billion in assets up for sale are secondary or underperforming assets. The core prime assets have been disposed two to three years before,” said Chin.
High asset prices are also moving investors away from investing in Beijing, according to the report, with many now expressing a greater willingness to invest in build-to-core strategies in Tier II and Tier III cities in China. A lukewarm interest was reported even for investing in emerging markets such as India and Indonesia, despite the newly-elected governments in both countries.
Macroeconomic factors have also contributed to this drop in investment intentions. As many as 16 percent of the investors surveyed said that concerns of a hard landing in China was dissuading them from investing. Factors such as the government policy measures in place to tackle the movements in the property market, currency risks, and concerns of an economic slowdown also weighed on investors’ mind.