Hong Kong: Opportunistic investors are pulling back from Asian property because they see more scope for picking up distressed assets in the US and Europe, and loans are harder to get in Japan, one of their favourite markets.
Hedge funds have stopped dabbling in property in the region, fund managers said. And although private equity players 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.
“Six months ago it was quite straight forward, we didn’t have to answer questions about why to invest in Asia,” Guy Cawthra, Asia fund strategist at Morley Fund Managers, told a recent conference here. “Now investors say ‘we might not want to invest in Asia, we want to invest in Europe, the UK and the US.’”
In the wake of the 1997-98 economic crisis, Asia, in particular Japan and South Korea, drew a raft of investment from funds run by the likes of Morgan Stanley, General Electric Co. and private equity firms such as Carlyle Group. Many made fat profits on a revival by Asian property markets, which are now mostly strong because of a shortage of new supply and still buoyant economies.
Researchers at consultants Jones Lang LaSalle forecast Tokyo office prices will steady this year after a 28% jump in 2007, while Seoul, Hong Kong, Singapore and Shanghai are still on the up.
Better opportunities now lie elsewhere for investors, who think they can spot a market trough and ride a recovery.
Because of tight credit and a worsening economy, US commercial real estate values could fall by 20% in the next five years from 2007 peak, JPMorgan analysts forecast, causing losses of about $120 billion (Rs4.8 trillion).
London office values have dropped 12% from a peak in the middle of last year, and they will be pressured further by forecasts of a 10% decline in rental values through 2009. “I think a lot of investors will return to home markets,” said Bart Coenraads, head of real estate at Fortis Investments.
Last year, total direct investment in the Asia-Pacific region jumped 27% to $121 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, analysts said, only giving loans worth 60-70% of a buildings value, compared with 80-90% a couple of years ago.
Lower debt gearing is likely to crimp returns for equity investors. But having spent years setting up teams, private equity funds are unlikely to withdraw completely from Asia, said Tim Bellman, global head of strategy for ING Real Estate BV.