Real Estate Investment In Asia Pacific: Migrating Capital

Real Estate Investment in Asia Pacific: Migrating capital In Association with: Contents 1 Introduction 2 Executive summary 4 The significance of real estate investment in Asia A Global context The Asian story Capital flows in Asia 18 Outlook for real estate products in Asia Real Estate Investment Trusts Real Estate Funds Real Estate Derivatives 32 About KPMG 33 About FTSE Group 34 About APREA © 2008 KPMG, a Hong Kong partnership and a member fi rm of the KPMG network of independent member firms affi liated with KPMG International, a Swiss cooperative. All rights reserved. © 2008 KPMG, a Hong Kong partnership and a member fi rm of the KPMG network of independent member firms affi liated with KPMG International, a Swiss cooperative. All rights reserved. 1 Introduction Property investment has emerged as an asset class, but it remains difficult to access and is often beset by complex structures and regulation. The factors governing investment decisions differ greatly from one market to another. Developed jurisdictions such as Australia, Hong Kong, Japan and Singapore all have well defined and strictly governed real estate markets, often competing to attract investment from institutional investors with an Asian property mandate. The other end of the spectrum sees frontier markets such as Vietnam, China and India closely studying regulatory frameworks in the rest of the region as a guide to establish their own viable marketplace for international real estate investors. Regardless of the variation in market development there is an underlying trend — the proliferation of REITs and the increased number of property stock listings. Both vehicles give investors the advantage of transparent reporting and accounting required by the listing exchange. As a result, we are seeing investors increasingly include listed property in their portfolio which compliments, rather than competes, with their allocation to direct property investment. A consequence of this new demand is the growing choice of Asian property funds. KPMG China, FTSE Group and APREA are pleased to have teamed up to develop this report, which explores the fast developing landscape of Asian real estate. Andrew Weir Partner in Charge Property and Infrastructure KPMG China Fran Thompson Director Asia Pacific FTSE Group Peter Mitchell CEO APREA Real Estate Investment in Asia Pacific: Migrating capital © 2008 KPMG, a Hong Kong partnership and a member fi rm of the KPMG network of independent member firms affi liated with KPMG International, a Swiss cooperative. 2 All rights reserved. Executive summary The credit crisis in the United States and Europe brought to an end a decade of sustained growth in global real estate. During this period, the debt-driven nature of real estate was a key factor in its emergence as a core asset class. These developments, which also had implications for equity markets, also started to make their way to Asia. Asian real estate has rebounded impressively since its own financial crisis a decade ago. Questions continue to be asked as to just how severe an impact the present credit crisis will have on the region. Arguably, many have been surprised by how relatively little Asia has been affected. Asia as a whole has continued to perform relatively well against the US and European real estate markets and more importantly, continues to attract investment. This is not to say that Asia has been immune, but it has been impacted to a much lesser degree. This has led some US and European funds to review their perspective on the region. Asian real estate may finally be getting the respect that many say it deserves. Capital flows in Asia have traditionally come from bank debt leveraging developments while real estate funds awash with capital have been investing throughout the region. With credit problems in the US and Europe, more focus is being given to Asia, with investors viewing market fundamentals favourably and increasing their allocations to the region. The credit crisis has not slowed the inflow of capital to Asia — quite the opposite. While real estate investment was already growing steadily due to a combination of opportunistic and increasingly longer-term investments, the credit crisis appears to be accelerating this process. Real Estate Investment in Asia Pacific: Migrating capital © 2008 KPMG, a Hong Kong partnership and a member fi rm of the KPMG network of independent member firms affi liated with KPMG International, a Swiss cooperative. All rights reserved. 3 More funds have been looking around the region than ever before, many with capital waiting to be invested. In recent months, a number of European pension funds have been looking to Asia in search of stable returns. There has been continued interest from Australian funds and even opportunistic US funds in search of distressed assets. Alongside huge Asian pension funds from markets such as Singapore, interest hasn’t been this high for a long time. Though interest may be here, there is also caution. Traditional sources of debt from US and European banks have all but dried up, and some Japanese and Australian banks are delaying loans, so financing deals around the region has become increasingly difficult. Probably the most pronounced effect from the credit crisis is a tightening of credit controls. In Asia, this is slowing the financing process rather than bringing it to a halt, which suggests it has arisen from the temporary uncertainty of lenders rather than more deep-seated problems in Asia’s real estate markets. Eventually, this could have a positive impact for the region, improving bank controls and in turn leading to stronger equity returns. Meanwhile, the traditional debt leverage model in Asia is being challenged from a number of directions. The recent and rapid emergence of real estate investment trusts around the region is one immediate sign. Although many are trading below net asset value, this generally does not reflect the quality of underlying assets and the expected positive returns. Likewise, the market capitalisation of listed real estate companies and real estate funds in emerging markets have been increasing at an extraordinary rate. In India, market caps are at an all time high far exceeding the expectations of mature markets and leading some observers to question the sustainability of this growth. To a lesser extent, increasing attention on Shariah-compliant financing (which prohibits the earning of interest) and the fledgling real estate derivatives market illustrate that debt-driven financing will not be the primary source of capital in future. Asian real estate may be experiencing some short-term pain, but the credit crisis will eventually benefit the region. The perception that the region is only suitable for opportunistic investors has been prevalent since the Asian financial crisis, but is now being turned on its head. In time, the credit crisis will result in Asia being regarded on a more equal and level playing field to the more mature but struggling markets of the US and Europe. Real Estate Investment in Asia Pacific: Migrating capital ... - tailieumienphi.vn