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ASIAN CAPITAL TRANSFORMS GLOBAL MARKET

APAC Outbound Capital

Asian outbound real estate investment reached a record year in 2014 depicting the abundance of liquidity the region has for real estate investments.

July 2015

Asia has been a focus for foreign direct investment (FDI) for more than three decades but as the region’s outbound investment increases, the tide is shifting.

According to a report by J.P. Morgan the 2013 United Nations Conference on Trade and Development’s World Investment says that Asia economies accounted for 20% of the top 20 global investor economies. The countries of Asia Pacific account for over a third of world GDP. In addition, the World Bank says that the region generated a total GDP at purchasing power parity in 2013 of USD 38.8 trillion, with China (41.7%), India (17.5%) and Japan (11.9%) accounting for nearly three-quarters of this figure.

With a strong purchasing power anchored by a robust economy, it’s no wonder Asian outbound real estate investment had a record year in 2014. According to property consultant CBRE the figure reached USD 40 billion—reflecting an increase of 23% year-on-year.

SOURCES OF CAPITAL

For Asian direct real estate investment, the major capital sources come from Singapore, China and Hong Kong.

“There are also increasing investment by Korean and Japanese investors but many are via funds. In terms of countries, UK, predominantly London is their top destination for overseas investment as they look for trophy prime assets in global gateway cities. But late last year we saw interest growing in the U.S. to tap the recovery of the market,” says Ada Choi, Senior Director for CBRE Research Asia.

The deployment of capital into real estate accelerated as new investor types emerged over the year, particularly from China and Taiwan.

“Outbound investment for the whole year 2014 surpassed 2013, the second year in a row the region has reached a record high. Singapore maintained its position as the number one source of outbound capital, closely followed by China and Hong Kong—with all three markets showing an increase in cross border investment. Singaporean investors looked offshore as a result of compressed yields in their home market and a shortage of investible assets, while Chinese outbound growth was in particular driven by the emergence of new sources of real estate capital, particularly insurers as they sought to increase their allocation to real estate under more relaxed rules,” explains Choi.

Choi added that in 2014 CBRE also witnessed Chinese property developers increasingly active in international markets. “Alongside more direct investment, more experienced Asian institutional investors from places such as Korea and Japan are increasingly gaining exposure via indirect funds and club deals. Established sources of capital such as these will continue to grow, but the emergence of sources of new capital such as the Chinese and Taiwanese insurance companies will make a significant mark on global real estate markets in the coming years.”

According to Choi, EMEA continued to receive the largest share of Asian investment in 2014, receiving USD 13.7 billion of the total, but remained flat on 2013. Other regions saw substantial increases in Asian investments: Americas (up 20% year-on-year), Pacific (33% year-on-year) and Asia intra-regionally (58% year-on-year). In Asia, Japan was the leading target destination, followed by China.

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