Large global investors expect to increase their exposure to Asian real estate as the risk premium versus Western market narrows, delegates at MIPIM Asia heard.
Speaking last week in Hong Kong, investment professionals at Canada Pension Plan Investment Board (CPPIB) and the Government of Singapore Investment Corporation (GIC) spoke of long-term allocation potential for the region.
Gilles Chow, director at CPPIB, said: “Speaking from the perspective of Canadian investor, we see Asia as certainly where the long-term growth is when you compare it to the other developed markets in which we have traditionally been investing.”
The North American institution already invests in Shanghai, Hong Kong and Australia, and has an office in Hong Kong.
Chow added: “Having people based in Asia who are able to communicate and speak in a credible way to our board, gives us the comfort that we do understand this market and we do know what is happening.”
GIC’s head of research and strategic planning Bernard Phang said Asia’s political and economic systems are becoming more transparent and liquid, while its legal systems are becoming increasingly mature.
“Over time I don’t see Asia in that sense – becoming more risky compared to the other markets,” he said.
Citing a PwC study, Phang said Asia’s investible real estate is growing at a faster pace than that of Europe and the US. “Real estate derives its demand from workforce and growth; if you have growth you tend to have demand for offices, residential and even logistics properties.”
He added that Asia’s real estate market will be supported by China’s new wealth, a result of the country’s role as an exporter of cheap labour in the past decade.
Collin Lau, the founder of Bei Capital and formerly the head of real estate investment at China Investment Corporation (CIC), said investors who are concerned about risks in Asia’s real estate markets tend to overly focus on data emerging from China.
“I want to remind everyone that the Chinese government owns all the land in China. People tend to focus on the $4trn of foreign exchange reserves, which is only a small fraction of the overall country’s wealth.”
While questions were raised on the potential impact of Abenomics, CPPIB’s Chow said Japan is Asia’s biggest real estate market and, for “large investors, it is a market where you can get scale and you can get volume”.
Despite Japan’s ageing population, the country has a “good productivity base,” said Phang, adding that he wouldn’t “write off” Japan because of its demographics.
GIC recently purchased the Pacific Century Place Marunouchi office building in the business district of Tokyo for about $1.7bn (€1.32bn). The fund is not allowed to invest in Singapore and has been a major buyer of overseas real estate.
Phang said GIC has taken a “bet” on Tokyo because the city is different from the rest of the country. “Our thesis is that this is one of the top two buildings in Tokyo – a very prime location. Are we worried that the building will be vacant? Absolutely not.”
He added: “It isn’t a homerun deal, but at the same time we think that it is a solid enough asset to own in a market at this point in the cycle.”
Chow said CPPIB sees potential in Asia’s emerging economies such as Vietnam and Cambodia, given their lower median age and growing middle class. But it remains difficult to get “scale and good investment partners”, he said.
Phang added: “Transparency and execution are not easy” in those markets.
Nicholas Loup, the chief executive of Grovesnor, said that, unlike China, which has clear policies and drive to improve transparency and cut corruption, “nothing has really changed in these markets.”