APAC property flows set to surge 33% in H2 rebound
Cross-border allocations to Asia-Pacific real estate markets are expected to grow by a third in the second half of 2024 compared to the same period last year, led by Australia's office sector, according to a report by Knight Frank published on July 30.
The report predicts Australia will command the largest share of cross-border flows by year-end at 36%, followed by Japan (23%) and Singapore (11%). Cross-border flows into Australia are forecast to double compared to 2023.
"Australia stands out as a prime destination for cross-border investments due to higher-than-average re-pricing compared to the rest of the region,” said Neil Brookes, global head, capital markets at Knight Frank.
Christine Li, head of research at Knight Frank Asia Pacific and the report’s author, cited early indicators of recovery in Australia and Korea.
Preliminary MSCI Real Assets data showed $1.9 billion of cross-border flows into Australia over the second quarter.
That's more than double the previous quarter, although this figure is likely to be revised when MSCI’s official second-quarter investor data is published in August.
Li said the research was based on the recovery of investor flows following previous market shocks, including the global financial crisis, the Chinese economic slowdown, and the Covid-19 pandemic.
“These demonstrate that transaction volumes in the region typically normalise within 30 months. Currently, we are in the 24th month of the high-interest-rate-induced downturn,” she said.
The flows will depend largely on rate cuts from the US Federal Reserve, the report noted.
Since the beginning of the year, consensus market forecasts have reduced the number of 2024 Fed rate cuts from six to two – currently predicted for September and December, with each cut at 0.25%.
As a result, many central banks in Asia-Pacific have opted to hold rates steady and begin easing only next year.
REIT MARKET SHRINKS
The predictions come as new data from Cushman and Wakefield provide more evidence of the shrinking of Asia’s real estate market in 2023.
The 225 real estate investment trust (REIT) products active in the market at the end of last year had a combined valuation of $252 billion, down 7% on the prior year.
Asia’s REIT market is dominated by Japan, which accounts for $109 billion but shrunk by 9% last year. Singapore, with $76 billion, grew by 4%.
Proportionally, India grew the fastest at 31% year-on-year to $10 billion, mainly thanks to the introduction of a new REIT called the Nexus Select Trust, whose stock price increased 30% last year.
Catherine Chen, director of capital markets research, Asia Pacific, at Cushman and Wakefield, pointed to the prospect of further growth in India, where retail investors are being lured to the asset class.
“Both the Chinese mainland and India markets have recently launched retail asset-backed REITs, providing investors with new channels to recycle their capital and to benefit from the growing consumer markets of the world’s most populous economies,” she said.
NEW INDEXES
On July 23, MSCI launched a new suite of tradable real estate indexes.
Based on existing portfolios of some of the world’s largest institutional investors, these indexes offer particular benefits for family offices and high-net-worth individuals (HNWIs).
“These indexes represent the aggregate private capital portfolios of MSCI’s institutional investor clients, reflecting the holdings of endowments or foundations, pension plans, SWFs (sovereign wealth funds), and all other types of institutional investors,” said Charissa Smith, co-head of private assets at MSCI.
AsianInvestor reported in February that family offices and ultra-high-net-worth investors have stepped up their real estate buying this year as institutional investors retreated from troubled Asia-Pacific market amid high interest rates and falling capital values.
The new indexes will widen the investment pool and provide access for smaller investors without detailed familiarity with or research capacity in the sector, Smith noted.
“This trend for allocation to private assets underscores the need for education and democratisation. The growth in [family offices’ and HNWIs’] private asset allocations increases demand for transparency, insights and analytics,” she told AsianInvestor.
Besides real estate, the 130 indexes span private equity, private credit, and private infrastructure.
The indexes will also help investors select and monitor their managers.
“They are designed to help inform asset allocation to asset classes and individual managers, compare your performance against the broader market and against peer groups, and assist in meeting obligations based on the strategic goals of stakeholders,” she said.