Launched in 2006, the Asian Real Estate Association (AREA) is growing rapidly and is forging alliances worldwide as Asia moves up investors' agenda. Co-chair Nick Loup talks to Martin Hurst about AREA's objectives and some of the key issues for investors in the region
The rapidly increasing membership of AREA is a clear function of the fast growing interest in Asia - and also to the significant issues facing investors in the region, particularly in the emerging end of the continent.
"Since AREA's formation we have grown the membership to about 40 participating managers and investors," says Loup, who is also MD of Grosvenor's Asia Pacific operation. "We are looking to grow that to 80 to 100 over the next 12 months."
Loup co-chairs AREA with Robert Lie, MD of Redevco and formerly CEO of ING REIM Asia. ING REIM and Grosvenor, along with Axa REIM, Hong Kong Land, Invesco, Clifford Chance, CLSA, Merrill Lynch and LaSalle IM, were the core group of founding organisations.
AREA also has a strong focus on growing the membership of pension fund investors. "We are particularly reaching out to the pure investors although there are still relatively few pension fund institutional investors such as APG who are on the ground in Asia," says Loup.
The mixture of fund managers and local blue chip local property companies such as Hong Kong Land and Mitsubishi creates a useful forum. "It is interesting for investors to have a dialogue with some of the big local companies just as it is useful for some of the local companies to have a dialogue with some of the blue chip institutional investment manager groups around the world," Loup notes.
AREA hopes to extend membership across Asia. "We already have a few members in India and of course we also want to become firmly established in the developed nations of Singapore, Hong Kong and Japan," says Loup. "The organisation is picking up momentum and we have our second annual general meeting and conference in Beijing in June which is being held in tandem with GRI China."
AREA has been keen to reach out to other key industry representative bodies. "We have a very friendly and constructive dialogue with AFIRE in the US," says Loup. "We have also had a series of meetings with INREV to talk about areas of mutual interest and cooperation; of course some of their members are already members of AREA but a lot of them are just starting to look at Asia. They're interested to see whether some of the very good information they get in Europe resulting from INREV initiatives will also be available in Asia. This is good common ground for us to work on; the basic ambitions of our organisations are very similar."
AREA is studying the possibility of introducing benchmarks and standards of best practice in a number of areas - reporting, benchmarking of returns and corporate governance issues in the market, notably regarding transparency which is still a major challenge in some parts of Asia.
AREA is working on two projects with INREV at the moment. One is a database of unlisted real estate vehicles in Europe and the other is an investment intentions survey.
In Europe huge strides have been made by INREV in building up the database of performance data but it is still not robust enough to provide a performance benchmark. Surely this will be still more challenging in Asia, but Loup is sanguine. "It may be a more challenging task in terms of the geographical area but generally we have found interest from the professional managers in cooperating with this sort of organisation because I think everyone can see the mutual benefit of creating transparency and mutual flows of information. Ultimately the investors behind the managers want to see information on the funds available and how they are performing. "The vehicles database will take a little more time," he says.
AREA is aiming to present the findings of the first investment intentions survey in time at its conference in June. The survey will seek views both from within the Asia region and foreign investors in Asia. Recently there has been a major shift in investor behaviour as investors become more familiar with Asia. "Over the last 12-18 months a lot of investors have been moving Asia from their tactical to their strategic allocations to the regions which means that the allocations are both longer term and larger," says Loup. "There is anecdotal evidence that we will see significant allocations to Asia over the next five years; 25-30% of a global portfolio would not be unusual."
One thorny issue among certain European investors has been the challenge which their Asia managers face in sourcing credible local partners. One even said that he despaired of the inability of even the largest managers to source good partners. "That is a disappointing comment," Loup notes. "Some countries may be more difficult than others but the important thing is how you approach finding the right partner, starting with the time you are prepared to invest. You have to invest time to find and then build the relationships. We were talking to one of our very good partners in Japan for five years before we did our first deal.
"In somewhere like India you have to be realistic in that the property markets have only been open for a very short period of time. As a result the number of groups that are there and have experience of dealing with international companies is very limited, so you need to be prepared to spend considerably more time to ensure that you really understand each other about your objectives before you go into the joint venture than you might do in Hong Kong or Singapore, for example."
Much has been said of the degree to which Asia has decoupled from the US but according to Loup the links are still strong. "There is no question that Asia is connected with the rest of the world - very directly through the stock market and also on the credit side where international groups from the US, UK and continental Europe were involved in lending in Asia, some of whom may now be drawing in their horns. And while exports from Japan to China have offset the fall in exports to the US, the slowdown in demand from US will still impact the markets out here. But overall the exposure of individual Asian countries to the US is far less than it used to be. Not only is there much more intra regional trade but many of the countries also have significant foreign reserves and large surpluses. So if the US sneezes Asia will catch a sniffle, not the flu."
