Hong Kong: Aberdeen Asset Management is launching two funds worth about US$600 million (Rs2,656 crore) each to funnel cash from institutional investors and rich individuals into a raft of new funds investing in Asian property. Such “funds of funds” are new to Asia’s booming physical property markets but are likely to proliferate as investors in Europe, North America and the Middle East look to the region for diversification and higher returns.
Aberdeen’s Kang Puay Ju, who will manage the funds, said Aberdeen had already raised around $400 million for the fund aimed mostly at European institutional investors. But the other, for high net-worth investors, was still at the formulation stage.
“For many European investors, Asia is still far away,” Singapore-based Kang told Reuters in a phone interview, explaining the demand for a fund of funds.
“They don’t have the resources, experience or expertise to play dedicated bets.”
Direct investment in Asia-Pacific property totalled nearly $100 billion in 2006, up around 40% from a year earlier, and with cross-border flows accounting for about one third, according to consultants Jones Lang LaSalle
Investment is ratcheting up even further, with several big funds being raised for Asia this year.
ING Real Estate, for example, is creating two $1 billion Asia property funds, Invesco is planning a $300 million fund for Japan and China, and Citigroup Property Investors has already unveiled a $1.29 billion fund.
Kang said she was interested in “value add” funds, which typically buy second- or third-grade buildings and refurbish them before seeking new tenants.
“I like the Japan story, but selectively because interest rates are starting to rise,” she said, adding that Tokyo’s top-grade buildings were getting too expensive.
Kang said Singapore commercial property would have a good run for a couple of years while supply lags demand.
She was also keen on Malaysia, South Korea, India and China but wary that the wave of funds entering immature property markets were driving prices up too high.
“I’m interested in India, but it’s a matter of getting comfortable with the huge amount of capital flowing in and the regulatory climate,” Kang said.
“China we’re looking at tentatively, but with the spate of new regulations, we’ll wait until the dust settles.”
The Chinese government has been trying to halt rampant speculation and cool the housing market with a raft of measures, including interest rate rises and taxes on developers and home sellers.
But investors are still drawn by internal rates of return on housing development that usually surpass 20 percent as the country undergoes mass urbanisation — an estimated 8 million people move to cities each year.
As for India, property funds have flocked to the country since the government eased rules on inward investment in the construction industry in early 2005. But many investors are wary of India’s notorious red tape and confusion over land titles.
Kang said around 30 funds targeting Asian property were now on the market. “The industry has grown a lot,” she said.