More single-family offices in China are exploring property investments across the Asia Pacific as geopolitical tensions reduce their traditional appetite for the US and Europe.
Real estate in Singapore, Australia, and Japan are growing in popularity while Korea and Hong Kong are also on the radar, according to Joe Kwan, managing partner of Raffles Family Office.
“Given current geopolitical risks, families with prior real estate investments in the US and Europe are now attracted to opportunities in Asia Pacific.” Kwan told AsianInvestor.
"Current pricing discount also presents a very compelling risk-return profile as compared to the US or European counterparts," he said.
Kwan noted Chinese family offices now exhibit risk aversion given current macro conditions, preferring to take a wait-and-see approach. They mainly look for prime opportunities while largely maintaining the portfolio weighting of real estate at about 30-35% of the total assets under management.
BACK TO HOME BASE
Top destinations within the Asia Pacific are Singapore, Australia, and Japan, where outsized profits represent less of a gamble, he added.
In Singapore, capital seeking safe haven continue to look at commercial properties such as offices, retail, long-lease rental apartments and co-living space. These investments are not subject to the 60% stamp duty imposed on foreigners' individual house purchases.
Australian, Japanese and Korean investments centre on residential-linked investments. Co-living space, student housing and office-to-residential repositioning are all broad trends that are in focus, Kwan said.
There is also interest in providing liquidity particularly through credit investments in markets like Hong Kong.
“Big [Chinese] family offices are now increasingly open to be relooking at Hong Kong because of the sharp decline of asset value,” Kwan noted.
"There are families who still hold a positive outlook for Hong Kong and these capitals are looking for deployment opportunities from mid-2024."
Bigger family offices usually prefer direct property holdings. The ticket size ranges from $100m to $500m deployment, Kwan said.
Smaller Chinese families, especially those seeking portfolio diversification across the region, lean towards fund investments, particularly those offering co-investment options.
Andrew Chan, partner at family office consultancy firm Lioner International Group, agreed with Kwan, saying Chinese single-family offices are increasingly looking at global diversification across the portfolio, including their real estate exposure.
OPEN TO NEW IDEAS
Families are not only diversifying into Asia, but also diversifying into different forms of assets beyond direct holdings, such as real estate funds, real estate investment trusts (REITs), and insurance products due to factors such as the complexity of remote management and uncertainties around interest rates, Chan said.
In Singapore, for example, where the stamp duty increased to 60% for overseas buyers of individual residential properties, investors are looking for alternatives.
“They are more open to new investment ideas now,” Chan told AsianInvestor.
In the past, wealthy Chinese families targeted high-risk, high-return investments. Now, global economic uncertainty and rising financing costs due to higher interest rates have shifted their risk tolerance lower, with an emphasis on capital preservation and succession planning, said Lucy Lu, managing director of Lioner Beijing.
Lu noted after three years of pandemic disruptions, clients continued to adjust their risk comfort, gradually transitioning from aggressive to conservative.
With bank deposits and fixed income delivering fair profits safely, Chinese family offices have been prudently evaluating riskier investments against such baseline returns in order to protect their assets.
“People are adjusting their risk appetite and investment targets without a very clear direction in altering weighting of different asset classes,” Lu told AsianInvestor.
“For Chinese clients, real estate investment is an appetite that has been developed over many years and will not easily change,” she said. “Overseas property purchase will remain a focus."
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