Asia capital outflows into global real estate down in H1

Singapore

THERE was net capital outflows of about US$17 billion from Asia into global real estate markets in the first half of this year, data from Real Capital Analytics (RCA) shows.

In H1 2016, Asian capital outflows reached US$18.3 billion.

And Brexit - the United Kingdom's withdrawal from the European Union - is not likely to reverse the direction that capital is moving, at least in the real estate sector, the analytics firm said.

In an interview, Petra Blazkova, RCA senior director of analytics for the Asia-Pacific, said that there was little pressure on Asian real estate owners to divest their assets as long as the cost of borrowing remains low and occupier markets are stable.

Moreover, asset pricing remains aggressive and at historic highs, so buyers also struggle to find suitably priced assets.

"Investors also don't feel confident about Asia's economic, political and financial environment. But ultimately it is the financial situations the real estate owners are in. They are in very good financial health and don't need to sell . . . while the buyers in the market are not able to offer the pricing that the sellers expect. So there is a mismatch between buyers' expectations and sellers' requirements.

"And because there is no pressure for sellers to sell, there are also not enough assets for sale at the moment. Asian investors, in particular the Chinese, are thus looking elsewhere, into Europe and the US . . . The opportunities outside Asia are much more plentiful than in their domestic region."

Ms Blazkova added that outflows from Asia is expected to continue into the second half of this year into other real estate markets. This contrasts against market talk that capital will be diverted into Asia post-Brexit.

"I hear it often, whether we think more capital will go back to Asia given what's happened in the UK. But we are not of that view, and the reason is pricing in Asia, which is quite aggressive at the moment.

"Also, most investors out there are core and core-plus investors (by RCA's definition, this refers to investors seeking quality assets that guarantee long-term income), and they are looking for very stable markets amid uncertainty. The only core markets in Asia are Australia and Japan."

Actually, Asian capital outflow into London has been slowing from a share of about 22 per cent over the past three years, to about 16 per cent in the first half of this year.

It is not that London property is facing distress, she said. The fundamentals of London real estate remain intact, but there is an emergence of new interest among Asian investors for North American properties. US cities are becoming larger recipients of Asian capital - a trend which will continue into H2 2016 and beyond, she said.

On Thursday, a CBRE report also identified Chinese investors as dominating Asian outbound investment in H1 2016, accounting for three-fifths, or US$16.1 billion, of total investment - more than double that of the US$7.3 billion figure in the previous year.

Insurance firms were the most active source of Chinese outbound capital, accounting for 50 per cent, followed by conglomerates (23 per cent), developers (10 per cent) and sovereign wealth funds (9 per cent).

Its figures also show that the US remained the favoured target region for Asian outbound investment, with 52 per cent of the overall total capital headed there. Consequently, New York has overtaken London as the top destination for investment among Asian capital in the first half.

Ada Choi, senior director of research, CBRE Asia Pacific, said that concerns over the market slowdown in their home market have led Chinese investors to seek a safer investment environment which offer higher potential returns.

"Asian capital, particularly Chinese, continues to display strong investment appetite in overseas markets, especially in global gateway cities, with the US remaining the stand-out target market," she said.

"With the recovery of the US economy and its solid real estate fundamentals, Asian investors are focused on capitalising on US assets. Chinese insurance investors led outbound investment among the different investor types as they increasingly seek to diversify their overseas portfolios.

"Conglomerates and sovereign wealth funds also remain active and play a significant role in outbound investment since there is a huge supply of investible capital in China.

"Asian outbound investment momentum will continue to be strong in the latter half of 2016 as there are still some pipeline deals expected to be completed by Asian investors. Chinese capital in particular will remain active. However, the growth will be at a more sustainable rate rather than a quick acceleration."