Asian investment in property within region to rise another 10% in 2019

Asian investment in property within the region rose 10% to US $98 billion (a record high) last year, property consultancy Colliers International said on Thursday. It is expected to record double-digit growth in 2019 as well. Asian investment in property within Asia was almost double that of Asian investment in property globally in 2018, Colliers said in a report, and is forecast to rise by another 10% this year to US $108 billion.

Investment in property beyond Asia actually fell 31% to US $50.5 billion last year, dragged by lower capital outflows from China. This trend highlights Asia’s position as the growth engine of the world, with a number of economies consistently growing by at least 4% in recent years, which translates into higher returns on investment.

“Clearly, what has happened over the last few years is that, with all outbound capital going to Europe and the US, the returns and yields in these markets have been compressed; you don’t get the attractive returns that you got a few years ago,” said Terence Tang, managing director of capital markets and investment services in Asia at Colliers, as well as one of the report’s authors. “Now, investors have to look for markets offering higher yields, and that is why Asia has managed to pull back some of the capital that was going away to the US and Europe.”

Five years ago, returns on US property investment stood at 5%, but have since declined to below 4%, Tang said. In Europe, the yields of UK commercial property have declined to below 5% from 6% previously, while in Germany, investors now have to contend with a 3% return rate from the previous 4% - 5%. Property in Asia, commercial and residential, is likely to give investors a total annual return of between 10% and 15%.A number of Asian economies have been logging growth of at least 4%, with China, India, the Philippines and Vietnam posting growth of at least 6%, in recent years. “You don’t find a lot of economies in Europe or the US that are offering the same GDP growth.

And the second reason is that because of this growth, a lot of institutional investors believe the income of the middle class will also grow exponentially in Asia, and real estate is very much dependent on income growth. These augur well for investing into Asian real estate,” Tang said. According to the Organisation of Economic Cooperation and Development, Asia’s middle classes will represent about 70% of the global total by 2030, and about 60% of its consumption, compared with 28% and 23%, respectively, in 2009.

Tang said higher infrastructure expenditure in Asia would also boost property in the region. This includes Beijing’s Belt and Road Initiative, which launched in 2013 and aims to build infrastructure in countries accounting for 68% of the world’s population and 36% of its GDP. Tim Graham, head of capital strategies at JLL Asia-Pacific, however, said the UK and Europe will continue to attract Asian capital. “The UK remains a key target market for a wide range of investors from Asia-Pacific …

By and large, we expect investors to adopt a wait-and-see approach given the current Brexit impasse,” Graham said. “Beyond this, we expect to see a revival in activity. It is clear that the UK, and in particular London, remains central to investors’ global real estate strategy and almost without exception, investors believe in the long-term future of the UK.”

Source: SCMP