ULI: US more attractive than Europe for Asian investors

While Asian investors are still putting money into Europe, they consider the US a better long-term play, delegates heard at the ULI Asia Pacific Summit.

In the long term, global and Asian investors still consider the US a better long-term real estate play than Europe, despite the continent’s short-term attractiveness, delegates heard at the ULI Asia-Pacific Summit in Hong Kong.

Alistair Meadows said that many new sources of capital in Asia, from insurance companies to high net-worth individuals, have been increasingly committing capital to the US and the UK in the past few years. “And this is not cyclical,” he added. “I am convinced that this is a structural shift in investor strategies that will continue to mature.”

Andrew Zhou, the chairman and chief executive of Ping An Real Estate, concurred that although Ping An’s major property investment business remains in the mainland, the Chinese insurance company is “eager to learn about overseas property investment.” Zhou said that Ping An is particularly interested in investing where Chinese businesses and Chinese students have a large presence.

“Having a Chinese investor handle the real estate – for offices or for places students can live – makes it more convenient and comfortable, so we want to be close to such opportunities,” he said. “Chinese want to go to specific cities, so we as investors will want to follow them.”

When asked about the opportunity in Europe specifically, however, Zhou said he considers the region’s dynamics more short-term. The volatility in the region has simply made real estate in Europe cheap for the time being, and Chinese investors at least are convinced it will go back up, he explained. “With interest rates also this low, it’s time to be daring.” But he admitted that time could soon be over.

One of the problems investors face in Europe, senior advisor at Joseph Azrack suggested, is that there is more private capital to be invested than product available. He compared Europe’s current situation to that of the US just after the crisis, but admitted he was unsure how much of Europe’s approximately $1 trillion underperforming property bank loans will actually make it to market. They might just stay within banks, he speculated.

In the US, on the other hand, the Blacksone Group senior managing director and head of real estate in Asia Christopher Heady, pointed out that limited new supply and lack of construction projects are making for much more attractive demand-supply dynamics. “Capital is back in the US, so there’s not as much distress left, but also not as much construction,” he said. “And the lack of construction is the opportunity in the US.”

Asian investors seem to have gotten that message. Of the $11.9 billion of outbound real estate investment from Asia, about $7.6 billion (or 64 percent) of that went to the US market, according to research from advisory firm Savills. Frank Marriot, Savills senior director and head of Asia Pacific real estate capital markets, added that about 60 percent of that US investment was Chinese developers buying land.

“I think we will see more development going forward, especially as yields compress in gateway cities,” he said.