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Exclusive: Colliers’ Moors on Asian capital

Gus Moors Lg

In a special report for HM, Colliers’ Gus Moors looks at key drivers of Asian outbound property investment.

After strong growth in outbound capital investment between 2001 and 2005, Asian offshore investment remained stagnant until 2009.

At the time the Western economies began crumbling in the Global Financial Crisis, Asian outbound capital exploded into life, growing nearly 450% between 2009 and 2013 to reach US$30 billion.

While Asian property investors have a long history as counter-cyclical buyers, this rapid growth in outbound investment has been fuelled by a series of key ‘push’ and ‘pull’ factors.

Pull – factors that are attracting Asian capital to Western property markets:
-Australian, US and European property yields are offering higher returns than their local domestic markets;
-There is an expectation of future economic recovery in key offshore markets like the US and Europe;
-During the GFC, Asian capital was able to access tightly held assets in prime gateway cities;
-The high level of transparency in property markets such as Australia provides added comfort;
-With expected economic recovery comes currency appreciation (US, Europe), providing further upside;
-Many Asians have an affinity with these Western markets, given they or their children having received secondary or tertiary education in these countries.

Push – factors pushing this capital out of their domestic markets:
-Increased funding costs in their local markets;
-Building an international reputation helps lift their profile domestically;
-Relaxation of government policies regarding offshore investment;
-Easing of restrictions on insurances companies being able to invest in real estate;
-Cooling measures in domestic markets, such as increased stamp duty and lower loan-to-value ratios;
-Strengthening local currency making offshore investments more attractive;
-Sovereign Wealth Funds increasing real estate allocations in their portfolio;
-The emergence of Asian REITS in Singapore and Japan

So what is it that these investors are looking for? The initial wave of offshore investors focused on prime A-grade assets in global gateway cities such as London, New York, Munich and Sydney.

As these opportunities become scarce, the next wave is now starting to consider fringe locations in these gateway cities, such as London’s East, downtown Manhattan and Chinatown in Sydney.
While trophy assets and high-end residential development sites were the initial focus for this Asian capital, moving forward we are likely to see their increased confidence will lead to experimentation into other asset classes.

Non-traditional property sectors such as hotels and value-adding schemes such as conversion and development will draw increasing levels of interest into the future.

With its expansive network of offices throughout Asia and Australasia, Colliers International is ideally placed to assist in identifying opportunities to invest into the Australian hotel market.

Gus Moors is the National Director of Transaction Services at Colliers International and formerly the Director of Asset Management at TAHL.

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