This year’s PERE Asia Summit took place in the midst of macro jitters and widespread economic uncertainty in some of the region’s largest real estate markets. Despite this, close to 500 real estate professionals attended the two-day event in Hong Kong, making it one of the largest in the conference’s history to date.
As one fund manager candidly remarked, conference attendance is usually considered a good gauge of the prevailing sentiment in the market. Numbers of this magnitude in his view mean the real estate market has already reached its peak and a sobering future awaits.
While not everyone endorsed his view, China and Japan’s shifting economic landscapes indeed remained the most discussed topic onstage and in private conversations among real estate managers and institutional investors. Japan’s surprise negative interest rate announcement earlier this year did not have the initial intended impact on the yen. The currency appreciation that happened instead made many panellists raise doubts about whether the real estate sector would eventually benefit at all from the policy change.
Last year’s stock market rout and the wider slowdown in China has made many investors cautious about deploying capital in the country. According to delegates, a further fall in property valuations and returns is expected in many sectors in the country. Tom Delatour, chief executive officer of Century Bridge Capital, said China’s residential real estate market has already reached its bottom and is not likely to improve for the next 18 to 24 months. CBRE’s annual fund expiry report, which was released during the conference and highlighted the challenges faced by funds in the termination phase, estimated that close to 33 percent of the leftover assets are actually in the retail and hospitality sectors in lower-tier Chinese cities. Weak investor interest has been making it hard to sell some of these assets. In fact, the report predicted that some of the fund managers would consider extending the terms of their funds.
Another critical concern that emerged was how to tackle currency volatility and factor it into the risk/return assessment of these markets. As Charles Cosgrove from Arch Capital Management said, to hedge or not to hedge was never a major issue while investing in China. That is no longer the case.
However, the optimists at the conference argued that now could well be the right time to enter the market, given the distressed opportunities and discounts in asset values that can be obtained in places like China. Russell Platt, co-founder and chief executive officer of Forum Partners, advised investors to avoid falling victim to the “herd mentality that occurs at the time of a slowdown”.