The enthusiasm over the return of Asia’s largest real estate event after a three-year absence was palpable at Raffles City Singapore this week, with long lines at the registration desk and conference organizers scrambling to find more seats for packed opening sessions.
Over the event’s three days, delegates learned how the Asia-Pacific region is being affected differently by global issues such as inflation, ESG and China volatility than the US and Europe.
Below are five takeaways from the conference.
The capital shift away from China will benefit emerging Asia
Investors are reallocating capital to developing markets in the region while taking a wait-and-see attitude toward China due to the country’s geopolitical issues. George Agethen, co-head of Asia-Pacific at Ivanhoé Cambridge, expected the investor to be more active in India as well as explore investment opportunities in Vietnam since China is getting “a bit tough” at the moment. Jeffrey Perlman, head of Southeast Asia and Asia-Pacific real estate at Warburg Pincus, also noted a “transformational manufacturing shift” from China to Vietnam, with the latter poised to receive higher capital inflows from investors. The firm has deployed over $1.5 billion into the country, including a $250 million investment into Vietnamese developer Novaland announced this week.
But developed Asia is also benefiting from the shift
Laurent Jacquemin, head of Asia-Pacific at AXA IM Alts considered Japan, Australia and South Korea to all be winners from the capital reallocation. He noted those three countries along with China accounted for around 80 percent of total transactions in Asia-Pacific. As the “stability of China is going down,” however, AXA IM Alts has decided to focus on the other three markets. In particular, Jacquemin saw South Korea growing “very fast” and one of the biggest winners from the shift. According to a CBRE report, commercial real estate investment volume in the country increased for the fourth consecutive year in 2021, reaching 20 trillion Korean won ($16 billion; €15 billion).
Inflationary pressure will be less severe in Asia
Rising inflation is playing out differently in Asia than in the West. Jacquemin pointed out that unlike in the US, where financing costs and cap rates have shot up due to high inflation, the inflation rate in Asia is expected to rise at a steadier pace. “In my view, we need a readjustment in real estate pricing at some point, as other pricing and cost of financing is going up, but not as quickly as it is in the US,” he said. Richard Massey, managing director at GIC, also noted that the region is experiencing a “transition stage” after having “cheap money for a long time.”
When it comes to ESG, it pays to think ahead
Jasmin Hu, vice-president of Asia-Pacific investments at Oxford Properties, said futureproofing assets was the key to avoiding higher capital expenditures over the long term. For example, warehouses should be developed with reinforced roofs from the get-go so they can bear the weight of solar panels in the future, since retrospectively strengthening roofs can be very expensive, Hu said. Meanwhile, Perlman said being proactive on ESG can boost valuations: “If you build with that focus in mind, those assets are going to be worth more in the future.” For example, to help reduce emissions at its properties, his firm has installed charging stations at some of its warehouses and is piloting drone delivery at a logistics project in Japan.
Asian managers also are looking to tap into retail capital
Similar to their counterparts in the West, Asia-Pacific managers are seeking ways to diversify their investor base with retail capital. Singapore’s Mapletree has previously raised retail capital through real estate investment trusts. However, deputy group chief executive Tiow Chye Chua said the manager also is looking at ways to tap into retail capital on the private side, including through tokenization. Mapletree currently is working with regulators to see whether it can launch new products that can be offered to the retail market. Meanwhile, Jing Dong Lai, chief executive and chief investment officer of M&G Real Estate’s Asia business, agreed retail investors are a potential source of capital, but said the firm does not have retail investors at the moment.