With Singapore and China leading the charge for outbound property investment, Asian investors are taking over the world one city at a time.
Text by Mira Soyza
China’s economic slowdown, commodity slump, currency gyrations, plunging oil prices, falling stock markets, credit crisis—talk of a downturn is in the air and the property market has started feeling the pinch. The looming uncertainty and volatility of the market has property investors, especially those from the developed economy looking outside of their country for a more stable market to shelter their money. In 2013, Hong Kong, Mainland China and Singapore’s outbound real estate investment alone accounted for 71% of the total amount invested by the Asian region, according to a report by Colliers International.
In the past few years, the Chinese have been pouring billions of their money into the Asian property market. Pushed by China’s slowing economy and devalued currency, Chinese investors started looking into other cities to convert their yuan into bricks and mortar. Australian cities like Melbourne, Sydney and Brisbane are a clear favourite among the Mainlanders; other sought-after investment destinations include Manhattan in New York City.
Investors naturally seek safe havens and lower risk exposure. Says David Brown, Managing Director of Meridien Group: “Residential property has proven to be the lowest risk of all asset classes. So you can expect that there will be greater demand for residential property in low risk markets that still provide a good balance of yield/returns and capital growth potential. And, naturally, Australia stands out as an investment destination for Asian investors”.
Australia is in fact the first choice for Singaporean (and Malaysian) global property investors as they regard it as a good and safe investment location. A recent report by CBRE noted that Singapore—not China— led the Asian outbound real estate investment last year with USD19.3 billion; followed by China at USD17.6 billion.
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Singaporeans seem to have a slightly different appetite than their Chinese counterparts. According to a survey conducted by IP Global, Australia, the United Kingdom and Japan are the top investment destinations for Singaporean investors on account of their well-defined rules and regulations governing their property sector.
“Real estate has traditionally been the favoured investment asset choice among Singaporeans making them well versed in spotting trends and opportunities in the sector. The rising value of the Singaporean currency – which has strengthened against the Australian Dollar, British Pound and the Japanese Yen over the past 12 months – has opened up new opportunities for Singaporean investors in these countries,” says Alex Bellingham, Director of IP Global.
Standing on third spot in outbound investment is Hong Kong while South Korea takes up the fourth spot. Korea has been stepping up its game—Korean outbound capital grew rapidly by almost 70% year-on-year compared to Chinese outbound capital of 46% in 2015. Owing to the stable returns offered, most of its investment capital flowed to the US, Europe and Australia. Japan meanwhile is among the top three choices for investors in Hong Kong.
There are more activities coming from other Asian countries namely Malaysia, Japan, Taiwan and Thailand. These players are also investing in emerging markets such as Phnom Penh, Manila, Jakarta and Ho Chi Minh City. Although emerging markets have been struggling generally, India however is doing reasonably well and is expected to continue to do so throughout 2016.
Balanced portfolio
The UN has recently forecasted that the global urban population will grow by 380 million people by 2020, which means demand for city real estate is going to surge. The burning question is which city should investors park their money? The challenge faced by many global property investors today is determining the best investment strategy in these increasingly challenging times — they face the choice of tapping into the rapidly growing emerging markets or jumping onto the bandwagon of established first tier cities around the world.
The problem with buying real estate in established cities is the slow growth of prices which have already previously gone through the big price appreciation stage. On the other hand, the emerging markets, while growing at a faster rate is a riskier path to take. Case in point is Taipei’s property prices which are among the highest in the world—90% of the locals living in the Taipei metropolitan area can’t afford to own an apartment yet prices have only experienced a slight drop so far. Meanwhile, it has been receiving steady foreign demand since the past years. Despite being affordable and receiving high demand from Asian expatriates like the Japanese and Korean working in industrial estates around the region, Jakarta is still a rather volatile emerging market. Property in these emerging markets tend to cost significantly lower than in major investment destinations such as Singapore and Hong Kong yet they offer high rental yield. Hence, property investors should seek a balance of growth and diversification in their global property portfolio[/ihc-hide-content]