The surge of Asian capital coming into European real estate is staggering but investors need to be mindful of mistakes made by their predecessors, Peter Hobbs, head of research at IPD, has cautioned.
The surge of Asian capital coming into European real estate is staggering but investors need to be mindful of mistakes made by their predecessors, Peter Hobbs, head of research at IPD, has cautioned.
'Real Capital Analytics published data recently showing in that last year there has been twice as much capital coming from the east to the west as there is from the west to the east so it is staggering in terms of the increase,' Hobbs told PropertyEU during the recent ULI Trends conference in London.
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Asian equity is coming not just from China, but also from Malaysia, Singapore, Korea, Japan and Australia. The wave of capital is driven by a range of factors, Hobbs said. These include very aggressive pricing in their local markets, with cap rates of 2.5-3% in Taiwan and Hong Kong. There have also been changes in regulation that enable investors to invest overseas, and this has led institutions with little exposure to real estate to up their allocation, often on a global basis.
'But I do have concerns about this wave coming now as I make comparison to 25 years ago when the Japanese came to London in a big way and made some big mistakes,' Hobbs said.
Hobbs noted three main concerns. The first relates to pricing as markets in London and across Europe are 'pretty aggressively priced'. The second issue, Hobbs said, is that newcomers need to find the right partner who can help, not just with buying a property, but also with providing effective asset management over the long term. And thirdly, investors need to ensure that there is alignment with what they want, that there is no style drift and that they are not taking on more risk than anticipated.
Hobbs: 'What we are trying to do is help these investors coming from overseas to manage those risks, and not invest at the top of the cycle. Scrutinise their managers and ensure the process is very aligned with their objectives'.
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