Asia's outbound property investments – where the smart money is heading

By MARKETWIRE
April 16, 2014

HONG KONG, China – Better returns, less regulation and more diversification are the key drivers among Asian investors when they buy overseas property, according to speakers at a panel discussion during the recent Colliers International Asia Real Estate Investment Forum in Hong Kong.

They referred to the "three waves" of Asian investors who have entered the global arena: (1) long-term institutional ones seeking bond-like yields, (2) high-net-worth individuals with a shorter time horizon and willingness to take higher risks, and (3) developers pursuing short-term trading opportunities and willing to take higher risks.

Goodwin Gaw, Founder and Managing Principal, Gaw Capital Partners, explained that stable yields in certain overseas markets, greater liquidity in China, a desire to diversify, and the Chinese government's encouragement of overseas investments were all adding momentum.

Meanwhile, the panel members observed that investors may face risks if they build large projects in North American cities that already have sizeable Chinese communities. "You're going to create mini-Chinatowns in those cities, and there may be a backlash," Gaw warned.

London remains alluring

Asian investors are attracted to the UK because its tax regime is easier to understand and the small spread between borrowing and yield. Also, the similar legal system makes it especially suitable for Hong Kong investors.

London property prices didn't decline during the last financial crisis, although they might in the future. Robert T. Lie, Managing Director, Real Estate Group, CITIC Capital, cautioned that the city's economy is for a large part based on the financial industry, like Hong Kong's, and property there is expensive. "Asian investors need to understand the changes taking place in London and what it will be like in the future. Otherwise, they might lose out if their timing is wrong," he added.

Speakers emphasised that Asian investors must take time to understand the characteristics of any market they intend to enter, although one speaker declared that China's top developers are already smart in their approach.

Prospects for US property

The panel members opined that the cumbersome US regulatory environment could be advantageous to investors, because it mitigates supply risk. Yet they should remain cautious while quantitative easing is being unwound, because it could cause further volatility in the market.