Singapore investors ploughed more capital into real estate in the Asia-Pacific last year than a year earlier, with land and offices topping their list of purchases, even as their acquisition fervour back home continued to ease.
Outbound real estate investments in the region by Singapore investors rose 31.8 per cent to US$9.7 billion, while domestic investments slipped 20.7 per cent to US$4.8 billion.
The S$4.1 billion acquisition of commercial property Century Link in Shanghai Pudong by a fund set up by Singapore-listed ARA Asset Management with China Life and South Korea’s Peninsular Investment Partners stood as the biggest single-property purchase in the region last year.
With cooling measures still in force in their home market, Singapore developers have continued to look for opportunities abroad.
Depreciation risks of the yuan also spurred more real estate deals by Chinese investors outside the country. Their outbound real estate investments in the Asia-Pacific surged 66.2 per cent to US$13.4 billion, while their investments within mainland China grew 6.9 per cent to US$337.7 billion.
Amid lingering concerns over yuan weakness, well-capitalised Chinese developers piled into land and office deals in Hong Kong, setting new price benchmarks there. Being at the doorstep and having a currency pegged to a strengthening greenback, Hong Kong ticked all the boxes.
While the broad outbound trend among Singapore and Chinese investors is likely to persist in the medium term, global macroeconomics will dictate investment dynamics and allocations this year.
If the Fed hikes rates continually, the strengthening US dollar could benefit the region as Asia-Pacific investors focus their firepower at home, and the region will also offer more value to European and US investors.
Chinese and Singapore investors were the region’s dominant real estate investors, making up a third of total foreign investments in the region. Notably, China and Singapore were also the top two Asian sources of foreign capital in the US and Europe last year. Real estate investments by Chinese investors in the Americas jumped 57.1 per cent in 2016 to US$16.3 billion.
Singapore developers, Reits and institutional investors will remain the most active outbound investors and are looking to raise their exposure in the emerging markets of India and South-east Asia.
Chinese insurers are also expected to shore up their overseas real estate allocation, which now represents only 2 per cent of their total assets, below the 15 per cent ceiling. However, new capital controls implemented by China could slow the overseas buying seen in the last two years. While more cross-border transactions will be inevitable, the days of mega-deals are likely over.
Last year, office and land deals each accounted for 24 per cent of global investments by Singapore investors. Land deals made up 88 per cent of all real estate investments by Chinese investors, followed by office (6 per cent) in 2016.
Opportunities to buy into prime office assets in the region’s gateway markets remain limited and highly sought-after by core investors.
Given healthy occupancy rates, office assets in the region still offer good earnings visibility, so the lower yields are an acceptable trade-off for core investors. Meanwhile, developers in Singapore and China also have a ready home market to tap when selling overseas residential projects, especially in top-tier cities.
Last year, the top overseas destinations for Singapore real estate investors were China, the UK, the US and Australia; while the US, Hong Kong and Australia were the top outbound venues for mainland Chinese real estate investors.
Adapted from: The Business Times, 13 January 2017