March 11, 2008
HONG KONG – OPPORTUNISTIC investors are pulling back from Asian property because they see more scope for picking up distressed assets in the United States and Europe.
Hedge funds have stopped dabbling in property in the region, fund managers say.
Although private equity firms will continue to develop property in India and China, they are more likely to buy buildings on the cheap in the West than in Asia.
In the wake of the economic crisis from 1997- 1998, Asia, in particular Japan and South Korea, drew a raft of investment from funds run by the likes of Morgan Stanley, General Electric and private equity firms such as the Carlyle Group.
Many have made fat profits on a revival by Asian property markets, which are now mostly strong.
Researchers at Jones Lang LaSalle forecast Tokyo office prices will steady this year after a 28 per cent jump last year, while Seoul, Hong Kong, Singapore and Shanghai are still on the up.
Better opportunities, however, now lie elsewhere for investors who think they can spot a market trough.
Because of tight credit and a worsening economy, US commercial real estate values could fall by 20 per cent in the next five years from their peak last year.
London office values have dropped 12 per cent from a peak in the middle of last year, and they will be pressured further by forecasts of a 10 per cent decline in rental values through next year.
‘I think a lot of investors will return to home markets,’ said Mr Bart Coenraads, head of real estate at Fortis Investments.
‘Some will try to buy distressed core and refinance it. They could make good returns.’
Last year, total direct investment in the Asia-Pacific region jumped 27 per cent to US$121 billion (S$167.8 billion) – a sixth of the global total – with about half invested in Japan, which has been popular for its rock-bottom interest rates.
However, Japanese banks are getting cold feet on property, only giving loans worth 60 per cent to 70 per cent of a building’s value, compared to 80 per cent to 90 per cent years earlier.
But having spent years setting up teams, private equity funds are unlikely to withdraw completely from Asia.
‘Funds have been raised and platforms are set up, and they don’t want to unwind them overnight,’ said Mr Tim Bellman, global head of strategy for ING Real Estate.
‘But at the margin, opportunistic investors who looked at Asia are finding those opportunities back home.’
Source: The Straits Times