SEB AM outlines top picks for Asia

Choy-Soon Chua, managing director at SEB Asset Management, tells PropertyEU he is on the hunt for investment opportunities in Asia.

PropertyEU: Where do you see the best investment opportunities in Asia and why?
Chua: We’re active in Japan, China and Singapore as we see good opportunities there for our various global funds as well as our Asian-dedicated SEB Asian Property Fund. In general, we like the retail sector as it’s been more resilient than the office sector in the region. Asians enjoy eating out and shopping centres tend to have a large food component, which helps draw in shoppers. Also, most Asian cities are highly urbanised and densely populated. In Asia we also invest in office and residential properties: SEB Asian Property Fund has two office buildings in Singapore, a shopping mall in Chiba, Japan, and a residential property in Tokyo. Other internationally-oriented SEB funds are invested in Malaysia, Japan and Singapore, their focus currently being on offices. In Japan, we mainly invest in Tokyo because it’s a very liquid market, despite the weaker macroeconomic picture. In China, we are interested in the residential and retail sectors in second tier cities such as Dalian in northern China and Chengdu in western China, to name a few. The going-in cost is more attractive compared to the first-tier cities. We’re not active in India as we find China is big enough for us

PropertyEU: What have you acquired in Asia this year?
Chua: We’re in the process of buying a shopping centre, although the deal hasn’t closed yet, so I can’t say much about it. But it’s an equity investment of around €50 mln and it is a joint venture with other local joint-venture partners. We’re currently looking at some residential and office possibilities in Tokyo. Last year, we looked at several office and residential deals in Japan, where capital values for prime offices have fallen by 40% since their peak in 2007. We were pricing at pessimistic levels, which perhaps vendors found too low. That said, in December 2008, we bought a retail property in Tokyo for around €100 mln. Our SEB Asian Property Fund currently has a gross volume of around €600 mln. Also, earlier in September, we sold Cross Tower in Shanghai to a fund managed by Ascendas, a Singapore-based real estate company for an undisclosed sum.

PropertyEU: How do you expect the Asian market to develop over the next year?
Chua: I think we will see more flotations of real estate companies in Hong Kong, Singapore and China. Asia is already home to seven of the 15 largest publicly traded real estate companies worldwide. We might also see pan-Asian companies listing in Singapore as it’s proven to be quite a liquid and deep market. We’re also seeing more high-net-worth individuals across Asia going on a ‘shopping spree’ to acquire real estate. So, we’re seeing Chinese money acquiring real estate in Hong Kong, for example, and Chinese and Indian money finding its way to Singapore. There’s the question of whether another bubble is brewing in Asia. It’s a tough question and different analysts have different views.

PropertyEU: Does SEB AM plan to launch any additional Asian property funds?
Chua: Yes, we are in the process of putting together our second Asian property fund, which will be called SEB Asian Property Fund II. The fund will be pan-Asian but will likely concentrate on China, Japan and Singapore, although it will also look at South Korea. Our first fund invests largely in core properties but this fund will have some exposure to value-add opportunities. We will start marketing the fund this autumn. The target size is €600 mln, but once we have attracted €200 mln in investment, we will launch it. Our existing Asian fund has an internal rate of return (IRR) of 9%. This fund will have a similar target return, as our leverage will not exceed 50% to 60%.