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Diversification of Singaporean Real Estate Investors Continues

Posting date: 8 April 2019
William Buck our consultant managing the role

Market dynamics that dictate the fund management jobs market

Singaporean real estate investors continue to diversify away from their traditional markets and increase the geography and sectors of their investments, and investors from some other Asian countries are following suit. As Mr Leo Chung, Associate Director of Research for the Asia Pacific region at CBRE said of its latest 2018 Asian Outbound Investment Report:

The Asian outbound investment story in 2018 was on one hand characterized by a clear moderation from China but, on the other hand, represented cyclical portfolio rebalancing and strategically preparation for future activity. The pullback from China’s investors was not entirely unexpected but encouragingly created opportunities for new strategic investors to amplify offshore investment activities.”

The trend of geographical and sector diversification looks set to continue. In response, new foreign companies are entering the Asian market. These, and existing investment companies, are seeking different and more diverse skillsets in their hires to achieve their objectives.

Here we examine some of the key areas that are likely to drive employment considerations by companies and candidates through 2019 and beyond real estate investment & funds jobs.

Chinese investment in foreign real estate falls to mask increase by others

The CBRE report is sub-headed “Activity moderates as Chinese buying slows”. This succinctly tells the story of a collapse in investment flowing out of China while foreign investment by other Asian countries generally holds up, and in some cases forges ahead.

Chinese investment into foreign real estate assets nosedived from $35.4 billion to only $7.5 billion. The fall of $27.9 billion accounts for almost the entire 36% decline (to $53.8 billion) in foreign real estate investment by Asian investors in 2018.

Why are Chinese investors pulling back on foreign real estate investment?

The sharp decline in foreign investment by Chinese investors wasn’t unexpected. Foreign investment from China has been tapering since 2016. It was then that Beijing first tightened its controls on overseas investments in response to concerns about rising corporate debt and capital outflows. Wishing to strengthen balance sheets and recycle capital for other investment, Chinese investors have about-turned to become net sellers of foreign real estate.

Which countries are increasing investment into foreign real estate?

The first half of 2018 saw Singaporean investors become the Asian leaders in investment into foreign real estate. Korean investors, too, are increasing their exposure to foreign real estate assets. This trend continued through the second half of 2018, leading to:

  • $21.6 billion of investment into foreign real estate by Singaporean investors (up from $20.9 billion in 2017)
  • $7.3 billion of investment into foreign real estate by Korean investors (up from $6.3 billion in 2017)

Malaysian and Indian investors also boosted their investment into foreign real estate opportunities.

Why Singaporean investors are increasing focus on foreign real estate

The largest source of Asian capital flowing into foreign real estate, Singaporean investors have several reasons for investing overseas. These include:

  • Limited opportunities and squeezed yields in the domestic market
  • Diversification of portfolios that are heavily weighted to the domestic market

Singaporean investors can also borrow capital at competitive rates. This enables investors to benefit from the enhanced yields attainable offshore. As familiarity with foreign real estate markets and their specific cycles increases, Singaporean investment companies are becoming more comfortable with geographical diversification.

Where are Asian investors buying real estate?

CBRE reports that geographical allocations remained consistent between 2017 and 2018. Europe, Middle East and Africa (EMEA) remained the leading destination for Asian outbound capital in 2018. In US dollar terms:

  • EMEA attracted US$21.5 billion in total capital from Asian investors in 2018
  • Intra-Asian investment came in at $17 billion
  • Investment into real estate in the Americas was $11.6 billion
  • Finally, investment into real estate in the Pacific region was $3.7 billion

Where Singaporean investors are buying real estate assets

When considering overseas real estate, Singaporean investors have traditionally been most active in China. Almost a quarter of all foreign real estate purchased by Singaporean real estate investors since 2009 has been in China. However, the investment opportunities available in the United States, the United Kingdom and Australia have seen these countries emerge as key investment destinations, too.

Despite Brexit, London tops investment destination cities

Singaporean real estate investors, and those from Hong Kong and Korea, appear unconcerned by the uncertainty associated with Brexit that is blamed for dampening the property market in London.

The UK capital continues to be the favourite destination for Asian investment capital directed to real estate purchases, with 18% of all outbound Asian investment capital employed in London – a sizeable increase from 13% the year before. More than 85% of Asian investment activity in London real estate came from Singaporean, Korean and Hong Kong investors.

Other major cities that maintained or grew their proportion of inward Asian investment into real estate were Hong Kong (9%), Shanghai (9%) and Frankfurt (4%).

How important is India?

India is proving to be a major destination for Singaporean real estate investors and property developers. Historically, investment has been dominated by capital directed toward commercial offices. However, recent years have witnessed a diversification into other sectors such as warehouses, logistics, and urbanization projects.

To date, this diversification has taken place in much the same way as the Singaporean investment houses directed capital toward Indian and other foreign real estate – slowly, and with purpose. However, the level of investment into these more diverse sectors has increased recently as Singaporean firms are attracted by India’s strong macroeconomic environment and the government’s commitment to improve business conditions.

There are many investment companies operating out of Singapore and investing in Indian real estate. It would be impossible to name them all in a single article, but the following provides a flavour of the breadth and depth of the sector of the interest in India:

  • GIC, Singapore’s sovereign wealth fund, is a major investor in foreign real estate. It is one of the two largest property investors in the Indian market, with the Blackstone Group of the United States being the other. GIC recently purchased a 33% stake of DLF Cyber City Developers – a company specialising in the Indian rental market.
  • State-owned Temasek Holdings has invested across assets and sectors in India, primarily through subsidiaries or partly-owned companies such as Ascendas-Singbridge Group (ASG), Mapletree Investment Pte Ltd, and CapitaLand Ltd.
  • Mapletree entered the Indian market for the second time in 2018, expressing the intention to invest in office and logistics assets, making large acquisitions and working on brownfield and greenfield projects with developer partners.

What assets are Singaporean real estate investors buying?

While industrial real estate assets attracted the largest share of Singaporean purchases of foreign properties, offices and industrial property in Australia and retail assets in China also gave a strong showing.

However, it is also evident that investors are broadening their scope into broader sectors, including PRS, senior living, student accommodation, data centres, co-living, self-storage, co-working, etc. This is especially true in India, where demand for co-living and co-working space is being driven by an economic shift toward a more flexible, shared economy.

The future for Singaporean real estate investors

It’s likely that outbound investment from Singapore and other Asian countries will continue to grow. The potential that foreign real estate offers is backed by solid fundamentals, transparency of markets, and a solid regulatory framework.

With low interest rates making capital cheap, and the higher yields available by investing in overseas real estate, the opportunities overseas will likely see investment into foreign real estate grow further and faster in the coming years.

Singapore was the largest Asian investor in foreign real estate in 2018, but investment firms in Korea, Malaysia and India are also becoming more active on foreign shores. It is likely that investors from these countries will continue to plough capital into overseas real estate opportunities, especially as domestic markets are cooling, and yields are tight.

In summary, Singaporean and other Asian investment firms are most likely to employ a very strategic and measured approach to their overseas activities. They will be seeking to diversify further across geographies and asset sectors, and this will require selecting for definitive experience and knowledge.

The market for fund managers, investment managers, asset managers and portfolio managers, as well as real estate research, analysts, and specialists in investor relations and mergers and acquisitions is likely to be very competitive in a growing investment sector.

Whether a client or a candidate, the team here at Macdonald & Company is here to help you meet and beat the challenges of an exciting market, through 2019 and beyond. For a confidential consultation to explore how our expertise can help you achieve your goals, contact Macdonald & Company today.

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