China leads as Asia’s most active property investment market

06 March 2017   Category: News, Asia, Global   By Natalie Leung

China has surpassed Japan to become the most active property investment market in Asia Pacific, while the US remains the most popular destination for Asian investors.

Total property transactions in China increased by 10% to US$36.5 billion in 2016, exceeding volumes in Japan which fell by 37% in 2016 to $29 billion, according to commercial real estate services company Colliers International (Colliers). Hong Kong and Singapore also saw active investment interest in 2016, with Hong Kong’s total property transaction volumes increasing by 15% to $13.5 billion while transaction volumes in Singapore grew by 38% to $8 billion, it revealed in the Colliers report entitled 2017 – the year in which Asian property capital flows reverse: Fact or Fantasy?.

On the outbound investment front, the US received the greatest interest from Asian investors last year, worth $29.1 billion despite a 12% drop from 2015 and accounting for 49% of aggregate investments outside Asia.

According to the Colliers report, Asian investment across traditionally popular foreign markets were slightly muted in 2016, as total investment into the UK dropped by 25% to $9.3 billion followed by Australia which saw a 17% drop to $8.7 billion. The property investment market in the US was mainly boosted by capital from mainland China, representing 43% of the aggregate Asian investment total into the US. Last year, Chinese investment into foreign property reached $37.2 billion – with $25.2 billion invested outside Asia and $12 billion invested in the region.

Increasing investment

Another survey by data provider Preqin revealed that two-thirds of the 180 real estate fund managers it surveyed intend to deploy more capital over the next 12 months, compared to the previous year, while 50% are planning to increase their investments.

The private equity real estate sector saw an aggregate deal value of $242 billion in 2015 and $220 billion in 2016, added the Preqin report.

“Recent years have seen real estate fund managers generate the strongest returns of any private capital asset class, and distribute record levels of capital to investors. Deal flow has accelerated in the past few years, and fundraising remains robust,” said Andy Moylan, head of real estate products at Preqin, who added that many investors are looking to expand their real estate investment portfolios.  

“While concerns are growing in the real estate industry around the pricing and availability of assets, and the record levels of dry powder fund managers have available, most firms remain confident they can find value in the current market,” Mr. Moylan continued. “The majority of fund managers expect to put more capital to work in 2017 in order to capitalise on this, even if they have to adapt their strategies or lower their return expectations as a result of current challenges.”

Impact investing

Meanwhile, sustainable buildings have come under the radar recently due to the increasing popularity of impact investing, or ESG (environmental, social and governance) investing, according to a recent seminar about green buildings hosted by Asia Pacific Real Estate Association (APREA), in tandem with global law firm Baker McKenzie and Global Real Estate Sustainability Benchmark (GRESB).

Ruben Langbroek, head of Asia Pacific at GRESB, which assesses the ESG performance of real estate assets globally, sees growing demand for green buildings in the Mainland market as China shifts towards a green economy and increases its efforts to address the potential environmental impact caused by buildings.

With about $7.6 trillion worth of institutional capital seeking responsible investments in companies or sectors within the ESG space, Mr. Langbroek considers this an opportunity for companies to tap into sustainable building projects, bringing economic benefit to both owners and tenants.