As Asian core pricing continues to exceed historical standards now is the time to consider counter-cyclical opportunities or development projects in order to generate returns, Chiang Ling Ng, chief executive and chief investment officer of M&G Real Estate Asia, told PERE.
“There are a lot more competing funds which makes our space look much more conventional now. We all have to think harder to execute and originate in order to differentiate from our rivals. It is getting very crowded and the weight of capital is continuing to come this way,” said Ng.
“Going against the cycle is attractive because of the relatively more attractive pricing of overlooked market-sector. Also, this strategy allows for intensive asset management value add during the down-cycle to reposition the asset. When the market cycle turns in the favor of the investor, the asset is likely to outperform comparable assets in the market and benefit from more accretive capital value growth.”
M&G Real Estate, the real estate fund management arm of M&G Investments, invested more than $558 million in Asia Pacific real estate last year – its largest number of transactions by value since its 2006 launch.
Ng pointed to Australia’s Perth and Brisbane office markets as an example spots to make counter-cyclical plays and said that as current yields for Perth and Brisbane office are around 150bps higher than Sydney, there may be upside from near-term yield compression.
“In Australia, for example, counter cyclical opportunities could arise in assets that have fully priced in negative rental reversions. With effective office rents having adjusted downward by over 30 percent since the slowdown of the commodity sector in 2012, this market-sector is likely to be nearing trough. The supply pipeline is also easing.”
On the development front M&G recently acquired a logistics development site and a portfolio of retail and residential assets in Tokyo, Japan for $113.2 million.
“We have tried very hard to find product over the last three years and we have not come to the point of finding a good asset, so the [Tokyo development] makes sense for the portfolio,” said Ng.
M&G’s Asia chief also pointed to an increased focus on the current portfolio as well as adding assets to its core strategy. Last year the firm reopened Compass One, a suburban shopping mall in Singapore, by Teo Ser Luck, Ministry of Manpower in Singapore, following a major 10-month refurbishment program.
“With core assets they do get old and there is always something to do on them. That will be key, identifying where we can defend our core assets in to the future. Any new assets have to be diversifying our risk and improving the quality of the portfolio’s income.”
M&G makes its Asia investments using capital from its open-ended real estate fund. It currently holds 22 assets across Australia (34.2 percent of the portfolio), Japan (18.1 percent), Singapore (23 percent), South Korea (17.9 percent) and Hong Kong (5.5 percent).